Contract Law: A Beginning

Part II Objectives

1. Recognize the requirements of a valid contract.

2. Classify contracts as valid, void, voidable, or unenforceable.

3. Explain the requirements of a valid offer and acceptance, the first important elements in a binding contract.

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Part II Objectives

4. Summarize the various forms of consideration, when consideration is necessary to form a binding contract, and the exceptions to the rule requiring the presence of consideration in a contract.

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Part II Objectives

5. Determine what makes parties competent to contract and the effects of various incapacities.

6. Distinguish between a legal and an illegal agreement and the consequences of entering into an illegal agreement.

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Part II Objectives

8. Point out the circumstances in which parties to a contract may transfer their rights and obligations after the contract has been made.

9. Summarize ways in which contracts may be ended and the various remedies available to the parties for breach of the contract.

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Part II Objectives

10. Be able to apply the online rules that have evolved from traditional contract situations.

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What a Contract Is

• Contract: legally binding agreement between two or more competent persons.

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Elements of a Valid Contract

• Agreement, that is, Offer plus Acceptance

• Consideration

• Capacity

• Legality

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Agreement

• The agreement starts with an offer

• One person has something

• Another wants it

• The one who wants the thing makes an offer

• The one who has it either accepts the offer, or does something else, like haggling (making a counter-offer)

• They go back and forth until such time as the agreement is formed

Consideration

• This is the thing that a party wants

• It can be chocolate

• It can be peanut butter

• It can be money

• Chances are, if you have it, somebody wants it, and they may be willing to part with something they have to trade.

Capacity of parties

• Not everybody has the capacity to enter into a contract

• If you take advantage of somebody and make a contract, shame on you.

• And besides, if you get sued, you might get your contract thrown out, lose your consideration, and maybe you will be cast into outer darkness.

Legality

• Legality: the point that a contract must not be against the law.

• This point seems to make more sense than the others, but, as we know people make illegal transactions every day (like drug deals.) But it is pretty likely that a person who has lost on a bad drug deal isn’t going to take the matter to court, anyway.

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Breach

• Breach: failure to perform the obligations required by a contract.

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Contract Terminology

• All contracts may be classified in the following ways:

1. Bilateral or unilateral.

2. Valid.

3. Void, voidable, or unenforceable.

4. Formal or informal.

5. Express or implied.

6. Executory or executed.

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Bilateral and Unilateral Formation

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Bilateral Contract

• Bilateral contract: contract in which one party makes a promise in return for a promise made by another party.

• Most common type of contract.

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Unilateral Contract

• Unilateral contract: contract in which one party makes a promise in return for the performance of an act by another party.

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Valid and Void Contracts

• Contracts may be classified in terms of their enforceability.

1. Valid contract: contract containing all the essential elements.

2. Void contract: contract that has no legal effect and cannot be enforced.

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Voidable Contracts

• Voidable contract: contract enforceable against all parties until the party legally entitled to avoid the contract decides to do so.

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Unenforceable Contract

• Unenforceable contract: contract that is legal but fails to meet some requirement of the law.

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Formal and Informal Contracts

• Formal contract: written contract prepared with certain formalities, including a seal.

• Informal contract: contract prepared without formalities.

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Informal Contract

• Informal Written Contract:

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Express and Implied Contracts

• Express contract: contract in which the agreement is specifically stated.

• Implied contract: contract formed from actions of the parties.

• In some instances, a contract may be partially express and partially implied.

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Quasi Contract

• Quasi contract: contract implied in law to prevent one from benefiting at another’sexpense.

• In certain cases, the courts create a fictional contract, called a quasi contract, despite the wishes and intentions of the parties so as to promote justice.

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Executory and Executed Contracts

• Executory contracts: contract that has not been fully performed by one or all parties.

• Executed contracts: contract that has been completely carried out.

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Contracts Governed by Precedent or Statute

• Precedents vary from state to state.

• Some areas of contract law are governed by modern statutes that uniformly apply in all states.

• Common law will continue to govern those contracts that have not been modified or replaced by statutory law such as the UCC.

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