chapter 7 contracts: classification, agreement, and...

Copyright © 2006 by Pearson Prentice-Hall. All rights reserved Slides developed by Les Wiletzky

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ESSENTIALS OF BUSINESS AND

ONLINE COMMERCE LAW

1st Edition

by Henry R. Cheeseman

Chapter 7

Contracts: Classification, Agreement, and Consideration

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 and

businesses to sell and otherwise transfer

property, services, and other rights

� Without enforceable contracts, commerce

would collapse


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


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


1. Agreement 2. Consideration

3. Contractual

Capacity 4. Lawful Object

Elements of a Contract


Sources of Contract Law

1. 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)


Classifications of Contracts: Formation (1 of 2)

1. Bilateral contract – a promise for a promise

2. Unilateral contract – A promise for an act

3. Express contract – A contract expressed in oral or written words

4. Implied-in-fact contract – A contract inferred from the conduct of the parties


Classifications of Contracts: Formation (2 of 2)

5. Quasi-contract – A contract implied by law to

prevent unjust enrichment

6. Formal contract – A contract that requires a

special form or method of creation

7. Informal contract – A contract that requires

no special form or mode of creation


Classifications of Contracts: Enforceability

1. Valid contract – A contract that meets all of

the essential elements to establish a contract

2. Void contract – No contract exists

3. Voidable contract – A party has the option of

voiding or enforcing the contract

4. Unenforceable contract – A contract that

cannot be enforced because of a legal

defense


Classifications of Contracts: Performance

1. Executed contract – A contract that is fully

performed on both sides

2. Executory contract – A contract that is not

fully performed by one or both parties


Agreement

� Agreement – the manifestation by two or

more persons of the substance of a contract

� It requires an offer and an acceptance


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]


Termination of an Offer

1. Revocation of the offer by the offeror

2. Rejection of the offer by the offeree

3. Counteroffer by the offeree

4. Destruction of the subject matter

5. Death or incompetence of the offeror or

offeree

6. Supervening illegality

7. Lapse of time


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


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


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


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


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


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)


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


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 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


Contracts Lacking Consideration (2 of 2)

� 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


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

chapter 7 contracts: classification, agreement, and...

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