9 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 9 Nature of Traditional and Online Contracts Chapter 9 Nature of Traditional

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 9 - 1

Chapter 9Nature of Traditional and

Online Contracts

Chapter 9Nature of Traditional and

Online Contracts


A A contractcontract is an is an

agreement that is agreement that is

enforceable by a enforceable by a

court of law or court of law or

equity.equity.


Introduction• Contracts are the basis of

many daily activities.• They provide the means for

individuals and businesses to sell and otherwise transfer property, services, and other rights.

• Without enforceable contracts, commerce would collapse.


Introduction (continued)

• Contracts are voluntarily entered into by parties.

• The terms of the contract become private law between the parties.


Legally Enforceable Contract• If one party fails to perform

as promised, the other party can use the court system to enforce the contract and recover damages or other property.


Parties to a ContractEvery contract involves at

least two parties.

• Offeror – the party who makes an offer to enter into a contract.

• Offeree – the party to whom an offer to enter into a contract is made.


Parties to a Contract

OfferorOfferorOfferorOfferor OffereeOffereeOffereeOfferee

OfferOffer

AcceptanceAcceptance

Offeror makes an Offeror makes an offer to the offereeoffer to the offeree

Offeree has the powerOfferee has the powerto accept the offerto accept the offerand create a contractand create a contract


To be an enforceable contract, four basic requirements must be met:

Elements Elements of a of a

ContractContract

AgreementAgreement ConsiderationConsideration

Contractual Contractual CapacityCapacityLawful Lawful

ObjectObject


Elements of a Contract (continued)

• Agreement– There must be agreement

between the parties.– This requires an offer by the

offeror and an acceptance of the offer by the offeree.

– There must be mutual assent by the parties.



• Consideration– The promise must be

supported by a bargained-for consideration that is legally sufficient.

– Gift promises and moral obligations are not considered supported by valid consideration.



• Contractual Capacity– The parties to a contract must

have contractual capacity.– Certain parties, such as

persons adjudged to be insane, do not have contractual capacity.



• Lawful Object– The object of the contract

must be lawful.– Contracts to accomplish illegal

objects or contracts that are against public policy are void.


Defenses to the Enforcement of a Contract

• Genuineness of Assent– The consent of the parties to

create a contract must be genuine.

– There is no real consent if the consent is obtained by:

• Duress• Undue influence• Fraud


Defenses to the Enforcement of a Contract (continued)

• Writing and Form– The law requires that certain

contracts be in writing or in a certain form.

– Failure of these contracts to be in writing or be in proper form may be raised against the enforcement of the contract.


Sources of Contract Law• The Common Law of

Contracts– Contract law developed

primarily by state courts.

• The Uniform Commercial Code (UCC)– Comprehensive statutory

scheme that includes laws that cover aspects of commercial transactions.


Sources of Contract Law (continued)

• The Restatement of the Law of Contracts– Compilation of model contract

law principles drafted by legal scholars.

– The Restatement is not law.– However, lawyers and judges

often refer to it for guidance in contract disputes.

– Currently in its second edition.


Classifications of ContractsBilateral

Contract• A contract

entered into by way of exchange of promises of the parties.

• “A promise for a promise.”

Bilateral Contract

• A contract entered into by way of exchange of promises of the parties.

• “A promise for a promise.”

Unilateral Contract

• A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.

• “A promise for an act.”

Unilateral Contract

• A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.

• “A promise for an act.”


Classifications of Contracts (continued)

Express Contract

• An agreement that is expressed in written or oral words.

Express Contract

• An agreement that is expressed in written or oral words.

Implied-in-fact Contract

• A contract where agreement between parties has been inferred from their conduct.

Implied-in-fact Contract

• A contract where agreement between parties has been inferred from their conduct.



Objective Theory of Contracts

• The intent to enter into an express or implied-in-fact contract is judged by the reasonable person standard.

• The subjective intent of a party to enter into a contract is irrelevant.



Quasi-Contracts (Implied-in-Law Contracts)

• Allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties.

• Intended to prevent unjust enrichment and unjust detriment.



Formal Contracts

• Contracts that require a special form or method of creation.– Contracts

Under Seal– Recognizances– Negotiable

Instruments– Letters of

Credit

Formal Contracts

• Contracts that require a special form or method of creation.– Contracts

Under Seal– Recognizances– Negotiable

Instruments– Letters of

Credit

Informal Contracts

• No special form or method is required for their creation.

• Fully enforceable and may be sued upon if breached.– Leases– Sales Contracts– Service

Contracts

Informal Contracts

• No special form or method is required for their creation.

• Fully enforceable and may be sued upon if breached.– Leases– Sales Contracts– Service

Contracts



Valid Contract• Contract that

meets all of the essential elements to establish a contract.

• Enforceable by at least one of the parties.

Valid Contract• Contract that

meets all of the essential elements to establish a contract.

• Enforceable by at least one of the parties.

Void Contract• A contract

that has no legal effect.

• Neither party is obligated to perform.

• Neither party can enforce the contract.

Void Contract• A contract

that has no legal effect.

• Neither party is obligated to perform.

• Neither party can enforce the contract.



Voidable Contract

• Contract where one or both parties have the option to avoid their contractual obligations.

• If a contract is avoided, both parties are released from their contractual obligations.

Voidable Contract

• Contract where one or both parties have the option to avoid their contractual obligations.

• If a contract is avoided, both parties are released from their contractual obligations.

Unenforceable Contract

• A contract where the essential elements to create a valid contract are not met.

• However, there is some legal defense to the enforcement of the contract.

Unenforceable Contract

• A contract where the essential elements to create a valid contract are not met.

• However, there is some legal defense to the enforcement of the contract.



Executed Contract

• A contract that has been fully performed on both sides.

• A completed contract.

Executed Contract

• A contract that has been fully performed on both sides.

• A completed contract.

Executory Contract

• A contract that has not been fully performed by either or both sides.

Executory Contract

• A contract that has not been fully performed by either or both sides.


EquityEquity

A doctrine that permits judges to A doctrine that permits judges to make decisions based on fairness, make decisions based on fairness, equality, moral rights, and natural equality, moral rights, and natural law.law.

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9 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 9 Nature of Traditional and Online Contracts Chapter 9 Nature of Traditional