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Chapter 11 Formation of Traditional And Online ContractsPowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 5E, by Henry R. Cheeseman Chapter 11 Formation of Traditional And Online Contracts Prentice Hall © 2007
What Is a Contract? A contract is an agreement that is enforceable by a court of law or equity. Prentice Hall © 2007
Parties to a Contract Offeror Offeree Offer AcceptanceOfferor makes an offer to the offeree Offeree has the power to accept the offer and create a contract Prentice Hall © 2007
Sources of Contract LawCommon law of contracts Uniform Commercial Code (UCC) Restatement of the Law of Contracts Prentice Hall © 2007
Classifications of ContractsBilateral and unilateral contracts Express and implied-in-fact contracts Quasi-contract (implied-in-law) Formal and informal contracts Valid, void, voidable, and unenforceable contracts Executed and executory contracts Prentice Hall © 2007
Bilateral and Unilateral ContractsOffer is accepted by a promise Unilateral Offer can only be accepted by performance of an act by the offeree Prentice Hall © 2007
Express or Implied-in-FactExpress contract Terms are stated, either written or oral Implied-in-fact Plaintiff provided goods or services Plaintiff expected to be paid Defendant had the opportunity to reject the goods or services and did not Prentice Hall © 2007
Quasi-Contract (Implied-in-Law)Equitable doctrine to prevent unjust enrichment Elements of quasi-contract Plaintiff conferred a benefit on the defendant. It would be unjust not to require the defendant to pay for the benefit received. Prentice Hall © 2007
Formal and Informal ContractsFormal contracts require a special form or method of creation. Negotiable instruments Letters of credit Recognizances Contracts under seal Informal contracts include all other contracts that do not qualify as formal contracts. Prentice Hall © 2007
Valid, Void, Voidable Valid – meets all the required elements of an enforceable contract Void – has no legal effect Voidable – at least one party has the option to avoid enforcement Unenforceable – there is a legal defense to enforcement of the contract Prentice Hall © 2007
Executed and Executory ContractsExecuted – contract has been fully performed Executory – contract has not been fully performed by at least one party Prentice Hall © 2007
Elements of an Enforceable ContractAgreement Consideration Contractual capacity Lawful object Prentice Hall © 2007
Agreement Agreement The manifestation by two or more persons of the substance of a contract Requires an offer and an acceptance Prentice Hall © 2007
Parties to an AgreementOfferor Person who makes an offer Offeree Person to whom an offer has been made Prentice Hall © 2007
Requirements of an OfferThe offeror must objectively intend to be bound by the offer. The terms of the offer must be definite or reasonably certain. The offer must be communicated to the offeree. Prentice Hall © 2007
Objective Intent The intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties. Prentice Hall © 2007
Auctions Auction with reserve Auction without reserveIs considered an invitation to make an offer The seller has the right to withdraw the goods from sale. Auction without reserve The seller is considered an offeror. The seller must accept the highest bid. Prentice Hall © 2007
Termination of an OfferBy action of the parties: Revocation of the offer by the offeror Rejection of the offer by the offeree Counteroffer by the offeree Prentice Hall © 2007
Termination of the OfferBy operation of law: Destruction of the subject matter Death or incompetence of the offeror or the offeree Supervening illegality Lapse of time Prentice Hall © 2007
Acceptance The offeree’s acceptance must be unequivocal.The terms of the acceptance must match the terms of the offer. Mirror image rule Acceptance is effective when sent. Mailbox rule Prentice Hall © 2007
Elements of ConsiderationSomething of legal value must be given. There must be a bargained-for exchange. Gift promises (gratuitous promises) are unenforceable because they lack consideration. Prentice Hall © 2007
Other Promises Lacking ConsiderationIllegal consideration Illusory promises Moral obligation Preexisting duty Past consideration Prentice Hall © 2007
Persons Who May Lack the Capacity to ContractMinors Persons who have not reached the age of majority Mentally incompetent persons Intoxicated persons Prentice Hall © 2007
Minors Infancy doctrine Parties’ duties at disaffirmanceAllows minors to disaffirm (cancel) most contracts they have entered into with adults Parties’ duties at disaffirmance Minor has the duty to return the property he or she received in the condition it is in at the time of disaffirmance. Competent party has the duty to return all the consideration received from the minor. Prentice Hall © 2007
Contract Issues With MinorsRatification If a contract is not disaffirmed within a reasonable time after reaching majority, it is considered ratified. Necessaries of life A minor may not disaffirm contracts for necessaries of life. Prentice Hall © 2007
Mentally Incompetent PersonsIf a person is adjudged insane, the contract is void; neither party can enforce the contract. If the person is insane, but not adjudged insane, the contract is voidable by the insane person; the competent party cannot void the contract. Prentice Hall © 2007
Intoxicated Persons Most contracts entered into by intoxicated persons are voidable by that person. A person who disaffirms a contract based on intoxication generally must return the other party to status quo. Prentice Hall © 2007
Illegality Contracts having an illegal object are illegal contracts.Illegal contracts are void; neither party may enforce. Prentice Hall © 2007
Illegality Contracts contrary to statutes Gambling statutes Usury lawsSabbath laws or blue laws Licensing statutes Prentice Hall © 2007
Illegality Contracts Contrary to Public Policy Immoral contractsContracts in restraint of trade Certain covenants not to compete Some exculpatory clauses Prentice Hall © 2007
Covenant Not to CompeteA noncompete agreement related to an employment contract or sale of a business is legal if it is reasonable in 3 areas: The line of business protected The geographical area protected The duration of the restriction Prentice Hall © 2007
Exculpatory Clauses A contract provision that relieves a party of tort liability. An exculpatory clause is not effective if: It is against the public interest. It is the result of superior bargaining power. Prentice Hall © 2007
Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics.
Chapter 8— Introduction to Contracts – Classifications, Terminology and Formation REED SHEDD PAGNATTARO MOREHEAD F I F T E E N T H E D I T I O N McGraw-Hill/Irwin.
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