1. Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5 th Edition by Henry R. Cheeseman Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA Chapter 9 Nature of Traditional and E-Commerce Contracts Chapter 9 Nature of Traditional and E-Commerce Contracts

2. 9 - 2Copyright © 2004 by Prentice-Hall. All rights reserved. A contract is an agreement that is enforceable by a court of law or equity.

3. 9 - 3Copyright © 2004 by Prentice-Hall. All rights reserved. Introduction  Contracts are the basis of many 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.

4. 9 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. Introduction (continued)  Contracts are voluntarily entered into by parties.  The terms of the contract become private law between the parties.

5. 9 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. Legally Enforceable Contract  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 property.

6. 9 - 6Copyright © 2004 by Prentice-Hall. All rights reserved. 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 to enter into a contract is made.

7. 9 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Parties to a Contract OfferorOfferorOffereeOfferee Offer Acceptance Offeror makes an offer to the offeree Offeree has the power to accept the offer and create a contract

8. 9 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. To be an enforceable contract, four basic requirements must be met: Elements of a Contract AgreementConsideration Contractual Capacity Lawful Object

9. 9 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Elements of a Contract (continued)  Agreement There must be agreement between the parties. There must be agreement between the parties. This requires an offer by the offeror and an acceptance of the offer by the offeree. This requires an offer by the offeror and an acceptance of the offer by the offeree. There must be mutual assent by the parties. There must be mutual assent by the parties.

10. 9 - 10Copyright © 2004 by Prentice-Hall. All rights reserved. Elements of a Contract (continued)  Consideration The promise must be supported by a bargained-for consideration that is legally sufficient. The promise must be supported by a bargained-for consideration that is legally sufficient. Gift promises and moral obligations are not considered supported by valid consideration. Gift promises and moral obligations are not considered supported by valid consideration.

11. 9 - 11Copyright © 2004 by Prentice-Hall. All rights reserved. Elements of a Contract (continued)  Contractual Capacity The parties to a contract must have contractual capacity. The parties to a contract must have contractual capacity. Certain parties, such as persons adjudged to be insane, do not have contractual capacity. Certain parties, such as persons adjudged to be insane, do not have contractual capacity.

12. 9 - 12Copyright © 2004 by Prentice-Hall. All rights reserved. Elements of a Contract (continued)  Lawful Object The object of the contract must be lawful. The object of the contract must be lawful. Contracts to accomplish illegal objects or contracts that are against public policy are void. Contracts to accomplish illegal objects or contracts that are against public policy are void.

13. 9 - 13Copyright © 2004 by Prentice-Hall. All rights reserved. Defenses to the Enforcement of a Contract  Genuineness of Assent The consent of the parties to create a contract must be genuine. The consent of the parties to create a contract must be genuine. There is no real consent if the consent is obtained by: There is no real consent if the consent is obtained by:  Duress  Undue influence  Fraud

14. 9 - 14Copyright © 2004 by Prentice-Hall. All rights reserved. Defenses to the Enforcement of a Contract (continued)  Writing and Form The law requires that certain contracts be in writing or in a certain form. The law requires that certain contracts be in writing or in a certain form. Failure of these contracts to be in writing or be in proper form may be raised against the enforcement of the contract. Failure of these contracts to be in writing or be in proper form may be raised against the enforcement of the contract.

15. 9 - 15Copyright © 2004 by Prentice-Hall. All rights reserved. Sources of Contract Law  The Common Law of Contracts Contract law developed primarily by state courts. Contract law developed primarily by state courts.  The Uniform Commercial Code (UCC) Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions. Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions.

16. 9 - 16Copyright © 2004 by Prentice-Hall. All rights reserved. Sources of Contract Law (continued)  The Restatement of the Law of Contracts Compilation of model contract law principles drafted by legal scholars. Compilation of model contract law principles drafted by legal scholars. The Restatement is not law. The Restatement is not law. However, lawyers and judges often refer to it for guidance in contract disputes. However, lawyers and judges often refer to it for guidance in contract disputes. Currently in its second edition. Currently in its second edition.

17. 9 - 17Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts Bilateral Contract  A contract entered into by way of exchange of promises of the parties.  “A promise for a promise.” Bilateral Contract  A contract entered into by way of exchange of promises of the parties.  “A promise for a promise.” Unilateral Contract  A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.  “A promise for an act.” Unilateral Contract  A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree.  “A promise for an act.”

18. 9 - 18Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Express Contract  An agreement that is expressed in written or oral words. Express Contract  An agreement that is expressed in written or oral words. Implied-in-fact Contract  A contract where agreement between parties has been inferred from their conduct. Implied-in-fact Contract  A contract where agreement between parties has been inferred from their conduct.

19. 9 - 19Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Objective Theory of Contracts  The intent to enter into an express or implied-in-fact contract is judged by the reasonable person standard.  The subjective intent of a party to enter into a contract is irrelevant.

20. 9 - 20Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Quasi-Contracts (Implied-in-Law Contracts)  Allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties.  Intended to prevent unjust enrichment and unjust detriment.

21. 9 - 21Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Formal Contracts  Contracts that require a special form or method of creation. Contracts Under Seal Contracts Under Seal Recognizances Recognizances Negotiable Instruments Negotiable Instruments Letters of Credit Letters of Credit Formal Contracts  Contracts that require a special form or method of creation. Contracts Under Seal Contracts Under Seal Recognizances Recognizances Negotiable Instruments Negotiable Instruments Letters of Credit Letters of Credit Informal Contracts  No special form or method is required for their creation.  Fully enforceable and may be sued upon if breached. Leases Leases Sales Contracts Sales Contracts Service Contracts Service Contracts Informal Contracts  No special form or method is required for their creation.  Fully enforceable and may be sued upon if breached. Leases Leases Sales Contracts Sales Contracts Service Contracts Service Contracts

22. 9 - 22Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications 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. Valid Contract  Contract that meets all of the essential elements to establish a contract.  Enforceable by at least one of the parties. Void Contract  A contract that has no legal effect.  Neither party is obligated to perform.  Neither party can enforce the contract. Void Contract  A contract that has no legal effect.  Neither party is obligated to perform.  Neither party can enforce the contract.

23. 9 - 23Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Voidable Contract  Contract where one or both parties have the option to avoid their contractual obligations.  If a contract is avoided, both parties are released from their contractual obligations. Voidable Contract  Contract where one or both parties have the option to avoid their contractual obligations.  If a contract is avoided, both parties are released from their contractual obligations. Unenforceable Contract  A contract where the essential elements to create a valid contract are not met.  However, there is some legal defense to the enforcement of the contract. Unenforceable Contract  A contract where the essential elements to create a valid contract are not met.  However, there is some legal defense to the enforcement of the contract.

24. 9 - 24Copyright © 2004 by Prentice-Hall. All rights reserved. Classifications of Contracts (continued) Executed Contract  A contract that has been fully performed on both sides.  A completed contract. Executed Contract  A contract that has been fully performed on both sides.  A completed contract. Executory Contract  A contract that has not been fully performed by either or both sides. Executory Contract  A contract that has not been fully performed by either or both sides.

25. 9 - 25Copyright © 2004 by Prentice-Hall. All rights reserved. Equity A doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law.