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Transcript of Contract law

Chapter 007 - Contracts: Classification, Agreement & ConsiderationPowerPoint Slides to Accompany
ESSENTIALS OF BUSINESS AND
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Introduction
Contracts are the basis of many of our 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
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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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 or other remedy
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Parties to a Contract
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
Offer
Acceptance
Offeror
Offeree
Offeror makes an offer to the offeree
Offeree has the power to accept the offer and create a contract
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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The Uniform Commercial Code
Uniform Computer Information Transactions Act (UCITA)
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Express contract – A contract expressed in oral or written words
Implied-in-fact contract – A contract inferred from the conduct of the parties
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Quasi-contract – A contract implied by law to prevent unjust enrichment
Formal contract – A contract that requires a special form or method of creation
Informal contract – A contract that requires no special form or mode of creation
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Enforceability
Valid contract – A contract that meets all of the essential elements to establish a contract
Void contract – No contract exists
Voidable contract – A party has the option of voiding or enforcing the contract
Unenforceable contract – A contract that cannot be enforced because of a legal defense
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Performance
Executed contract – A contract that is fully performed on both sides
Executory contract – A contract that is not fully performed by one or both parties
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Agreement
Agreement – the manifestation by two or more persons of the substance of a contract
It requires an offer and an acceptance
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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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 bargain is invited and will conclude it [Section 24 of the Restatement (Second) of Contracts]
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Counteroffer by the offeree
Death or incompetence of the offeror or offeree
Supervening illegality
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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 an agreed-upon period of time
This payment is called an option contract
The offeror agrees not to sell the property to anyone but the offeree during the option period
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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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 the objective theory of contracts [Section 50 of the Restatement (Second) of Contracts]
The oferee’s acceptance must be unequivocal
The mirror image rule
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Mailbox Rule (Acceptance-Upon-Dispatch Rule)
Proper Dispatch
An acceptance must be properly addressed, packaged, and posted to fall within the mailbox rule
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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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Consideration
Consideration – something of legal value given in exchange for a promise
Consideration must be given before a contract can exist
Most common types of consideration:
Tangible payment (e.g., money or property)
Performance of an act (e.g., providing legal services)
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Gift promises (gratuitous promises) are unenforceable because they lack consideration
A “completed gift promise” becomes a true gift, which by definition is irrevocable
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
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Illegal Consideration
A contract cannot be supported by a promise to refrain from doing an illegal act because that is illegal consideration
Contracts based on illegal consideration are void
Moral Obligations
Promises made out of a sense of moral obligation or honor are generally not enforceable on the ground that they lack consideration
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Preexisting Duty
A promise lacks consideration if a person promises to perform an act or do something he or she is already under an obligation to do
The promise is unenforceable because no new consideration 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 of business in different countries
Additionally, either
both of the nations must be parties to the convention, or
the contract specifies that the CISG controls