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NATURE OF TRADITIONAL AND

E-CONTRACTS

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CHAPTER 9

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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.

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Introduction

• Basis of many daily activities.• Means for individuals and businesses to

sell and otherwise transfer property, services, and other rights.

• Without enforceable contracts, commerce would collapse.

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Introduction (continued)

• Contracts are voluntarily entered into by parties.

• Terms of the contract become private law between the parties.

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Legally Enforceable Contract

• If one party fails to perform as promised, the other party can sue to enforce the contract and recover damages.

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Parties to a Contract

• Every 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 is made.

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Parties to a Contract

OfferorOfferor OffereeOffereeOfferOffer

AcceptanceAcceptance

Offeror makes an Offeror makes an offer to the offeree.offer to the offeree.

Offeree has the powerOfferee has the powerto accept the offerto accept the offerand create a contract.and create a contract.

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To be enforceable, four basic requirements:

Elements Elements of a of a

ContractContract

AgreementAgreement ConsiderationConsideration

Contractual Contractual CapacityCapacityLawful Lawful

ObjectObject

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Elements of a Contract (continued)

• Agreement– Offer by offeror and acceptance by offeree.– Mutual assent.

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Elements of a Contract (continued)

• Consideration– The promise must be supported by

bargained-for consideration that is legally sufficient.

• E.g., money, services

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Elements of a Contract (continued)

• Contractual Capacity– Parties must have capacity.– Certain parties, such as minors or persons

adjudged to be insane, do not have contractual capacity.

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Elements of a Contract (continued)

• Lawful Object– The object of the contract must be lawful.

• E.g., contracts to commit a crime have an illegal object.

– Contracts to accomplish illegal objects or contracts that are against public policy are void.

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Defenses to Enforcement

• Genuineness of Assent– Lacking if consent is obtained by:

• Duress• Undue influence• Fraud

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Defenses to Enforcement (continued)

• Writing and Form– Law requires that certain contracts be in

writing or in a certain form.

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Evolution of Contract Law

• Freedom of contract

• Little government regulation

• Parties dealing face-to-face, equal bargaining power

• Form contracts

• Government regulation

• Parties dealing at a distance, unequal bargaining power

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Sources of Contract Law

• Common Law – Contract law developed primarily by state

courts.• Uniform Commercial Code (UCC)

– Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions.

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Sources of Contract Law (continued)

Restatement of the Law of Contracts– Compilation of model contract law principles

drafted by legal scholars.– Not legally binding.– Lawyers and judges often refer to it for

guidance in contract disputes.

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Objective Theory of Contracts

• Would reasonable person believe that the parties intended to create a contract?– Words and conduct– Surrounding circumstances

• Subjective intent irrelevant.

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E-Contracts

• Courts apply traditional contract rules• State and federal statutes also apply

– E.g., Uniform Computer Information Transactions Act

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Classification of Contracts

Bilateral Contract• “A promise for a

promise.”• E.g., “I promise to pay

you $1,000 if you promise to paint my store.”

• Most common.

Unilateral Contract• “A promise for an

act.”• E.g., “I promise to pay

you $1,000 if you paint my store.”

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Classification of Contracts (continued)

Formal Contracts• 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.• Most contracts

– Leases– Sales Contracts– Service Contracts

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Classification of Contracts (continued)

Valid Contract• Contract that meets

all of the essential elements to establish a contract.

• Enforceable by at least one of the parties.

Void Contract• Contract that has no

legal effect.• Neither party is

obligated to perform.• Neither party can

enforce the contract.

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Classification of Contracts (continued)

Voidable Contract• One or both parties

can avoid contractual obligations.

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

Unenforceable Contract

• Legal defense to the enforcement of the contract.

• Parties may voluntarily perform.

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Classification of Contracts (continued)

Executed Contract• Fully performed on

both sides.• A completed contract.

Executory Contract• Not fully performed by

either or both sides.

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Classification of Contracts (continued)

Express Contract• Expressed in writing

or verbally.

Implied-in-fact Contract

• Agreement inferred by parties’ conduct.

Implied-in-law contract

• No actual contract

• Court imposes agreement to avoid unjust enrichment.

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EquityEquity•Doctrine that permits judges to 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.•Sometimes applied in contract Sometimes applied in contract cases.cases.