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Chapter 7 Contracts: Classification, Agreement, and Consideration

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1 Chapter 7 Contracts: Classification, Agreement, and Consideration
PowerPoint Slides to Accompany ESSENTIALS OF BUSINESS AND ONLINE COMMERCE LAW 1st Edition by Henry R. Cheeseman Chapter 7 Contracts: Classification, Agreement, and Consideration Slides developed by Les Wiletzky

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

3 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

4 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 Offeror Offeree Acceptance Offeror makes an offer to the offeree Offeree has the power to accept the offer and create a contract

5 Elements of a Contract 1. Agreement 2. Consideration 3. Contractual
Capacity 4. Lawful Object 4

6 Sources of Contract Law
The Common Law of Contracts The Uniform Commercial Code The Restatement of the Law of Contracts Uniform Computer Information Transactions Act (UCITA)

7 Classifications of Contracts: Formation (1 of 2)
Bilateral contract – a promise for a promise Unilateral contract – A promise for an act Express contract – A contract expressed in oral or written words Implied-in-fact contract – A contract inferred from the conduct of the parties

8 Classifications of Contracts: Formation (2 of 2)
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

9 Classifications of Contracts: 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

10 Classifications of Contracts: 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

11 Agreement Agreement – the manifestation by two or more persons of the substance of a contract It requires an offer and an acceptance

12 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]

13 Termination of an Offer
Revocation of the offer by the offeror Rejection of the offer by the offeree Counteroffer by the offeree Destruction of the subject matter Death or incompetence of the offeror or offeree Supervening illegality Lapse of time

14 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

15 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

16 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

17 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

18 Offer and Acceptance - Summary
Communication by Offeror Effective When Offer Received by offeree Revocation of offer Communication by Offeree Rejection of offer Received by offeror Counteroffer Acceptance of offer Sent by offeree

19 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)

20 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

21 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

22 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

23 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

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