Chapter 007

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Copyright 2006 by Pearson Prentice-Hall. All rights reservedSlides developed byLes Wiletzky

PowerPoint Slides to AccompanyESSENTIALS OF BUSINESS AND

ONLINE COMMERCE LAW

1stEdition

by Henry R. Cheeseman

Chapter 7

Contracts: Classification,Agreement, and Consideration

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Copyright 2006 by Pearson Prentice-Hall. All rights reserved. 07 - 2

Introduction Contracts are the basis of many of our daily

activities

They provide the means for individuals andbusinesses to sell and otherwise transfer

property, services, and other rights

Without enforceable contracts, commercewould collapse

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Definition of a Contract A contract is an agreement that is

enforceable by a court of law or equity

If one party fails to perform as promised, the

other party can use the court system to

enforce the contract and recover damages orother remedy

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Parties to a Contract OfferorThe party who makes an offer to enter into a

contract

OffereeThe party to whom an offer to enter into a contract

is made

Offer

Acceptance

Offeror Offeree

Offeror makes an

offer to the offeree

Offeree has the power

to accept the offer and

create a contract

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1. Agreement 2. Consideration

3. ContractualCapacity

4. Lawful Object

Elements of a Contract

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Sources of Contract Law1. The Common Law of Contracts

2. The Uniform Commercial Code

3. The Restatement of the Law of Contracts

4. Uniform Computer Information Transactions

Act (UCITA)

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7/23Copyright 2006 by Pearson Prentice-Hall. All rights reserved. 07 - 7

Classifications of Contracts:Formation

(1 of 2)

1. Bilateral contracta promise for a promise

2. Unilateral contractA promise for an act

3. Express contractA contract expressed inoral or written words

4. Implied-in-fact contractA contract inferredfrom the conduct of the parties

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Classifications of Contracts:Formation

(2 of 2)

5. Quasi-contractA contract implied by law to

prevent unjust enrichment

6. Formal contractA contract that requires a

special form or method of creation

7. Informal contractA contract that requires

no special form or mode of creation

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Classifications of Contracts:Enforceability

1. Valid contractA contract that meets all of

the essential elements to establish a contract

2. Void contractNo contract exists3. Voidable contractA party has the option of

voiding or enforcing the contract

4. Unenforceable contractA contract thatcannot be enforced because of a legal

defense

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Classifications of Contracts:Performance

1. Executed contractA contract that is fully

performed on both sides

2. Executory contractA contract that is not

fully performed by one or both parties

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Agreement

Agreementthe manifestation by two or

more persons of the substance of a contract

It requires an offerand an acceptance

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Offer

The manifestation of willingness to enter into

a bargain, so as to justify another person in

understanding that his assent to that bargainis invited and will conclude it [Section 24 of

the Restatement (Second) of Contracts]

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Termination of an Offer

1. Revocation of the offer by the offeror

2. Rejection of the offer by the offeree

3. Counteroffer by the offeree4. Destruction of the subject matter

5. Death or incompetence of the offeror or

offeree6. Supervening illegality

7. Lapse of time

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Option Contracts

An offeree can prevent the offeror from

revoking his or her offer by paying the offeror

compensation to keep the offer open for anagreed-upon period of time

This payment is called an option contract

The offeror agrees not to sell the property toanyone but the offeree during the option

period

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Acceptance

A manifestation of assent by the offeree to

the terms of the offer in a manner invited or

required by the offer as measured by theobjective theory of contracts [Section 50 of

the Restatement (Second) of Contracts]

The oferees acceptance must be

unequivocal

The mirror image rule

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Time and Mode of Acceptance(1 of 2)

Mailbox Rule(Acceptance-Upon-Dispatch

Rule)

An acceptance is effective when it is dispatched

Proper Dispatch

An acceptance must be properly addressed,packaged, and posted to fall within the mailbox

rule

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Time and Mode of Acceptance(2 of 2)

Express Authorization

A stipulation in the offer that says the acceptance must be

by a specified means of communication e.g., registered mail, telegram

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Offer and Acceptance - Summary

Communication by Offeror Effective When

Offer Received by offeree

Revocation of offer Received by offeree

Communication by Offeree Effective When

Rejection of offer Received by offeror

Counteroffer Received by offeror

Acceptance of offer Sent by offeree

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Consideration

Considerationsomething of legal value

given in exchange for a promise

Consideration must be given before acontract can exist

Most common types of consideration:

Tangible payment(e.g., money or property) Performance of an act(e.g., providing legal services)

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Gift Promise

Gift promises(gratuitous promises) are

unenforceable because they lack

consideration

A completed gift promise becomes a true

gift, which by definition is irrevocable

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Contracts Lacking Consideration(1 of 2)

Illegal Consideration

A contract cannot be supported by a promise to refrain

from doing an illegal act because that is illegalconsideration

Contracts based on illegal consideration are void

Moral Obligations

Promises made out of a sense of moral obligationor honor

are generally not enforceable on the ground that they lack

consideration

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Contracts Lacking Consideration(2 of 2)

Preexisting Duty

A promise lacks consideration if a person promises toperform an act or do something he or she is already under

an obligation to do

The promise is unenforceable because no newconsideration has been given

Past Consideration Past consideration (e.g., prior acts) will not support a new

contract

New consideration must be given

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The United Nations Convention on Contracts

for the International Sale of Goods (CISG)

Applies to contracts for the international sale

of goods

i.e., the buyer and seller must have their places ofbusiness in different countries

Additionally, either

both of the nations must be parties to the convention, or

the contract specifies that the CISG controls

Chapter 007

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