1. © 2008 West Legal Studies in Business A Division of Thomson Learning 1 BUSINESS LAW TODAY Essentials 8 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus Chapter 7 Contracts: Nature, Classification, Agreement, and Consideration

2. © 2008 West Legal Studies in Business A Division of Thomson Learning 2 Learning Objectives  What is a contract? What are the four basic elements of a valid, enforceable contract?  What are the various types of contracts?  What are the requirements of an offer?  How can an offer by accepted?  What are the elements of consideration?

3. © 2008 West Legal Studies in Business A Division of Thomson Learning 3 Contracts  Function of Contracts: Fundamental to business. Creates rights and duties between parties. Provides stability and predictability.  Parties: Promisor (makes the promise) and Promisee (accepts the promise).  Definition of a Contract. Agreement that can be enforced in court. Formed by two or more parties. Failure to perform results in breach and damages.

4. © 2008 West Legal Studies in Business A Division of Thomson Learning 4 Elements of a Contract  A valid, enforceable contract includes: Agreement. Consideration. Capacity. Legality.  Defenses to Enforceability: Genuineness of Assent. Form.

5. © 2008 West Legal Studies in Business A Division of Thomson Learning 5 Contract Formation

6. © 2008 West Legal Studies in Business A Division of Thomson Learning 6 Bilateral vs. Unilateral Contracts  Bilateral Contracts: Offeror and Offeree exchange promises to each other. A contract is formed when Offeree promises to perform.

7. © 2008 West Legal Studies in Business A Division of Thomson Learning 7 Bilateral vs. Unilateral Contracts  Unilateral Contracts: Offeror wants performance in exchange for his promise. Contract is formed when Offeree performs. Contests and lotteries are examples. Revocation of Offer: modern view is that offer is irrevocable once the Offeree substantially performs.

8. © 2008 West Legal Studies in Business A Division of Thomson Learning 8 Formal vs. Informal Contracts  Formal: require special form or method to be enforceable, e.g., under seal.  Informal: all other contracts.

9. © 2008 West Legal Studies in Business A Division of Thomson Learning 9 Express vs. Implied Contracts  Express: terms of contract are set forth either in writing or orally.  Implied-in-Fact: based on conduct. Plaintiff furnished service or product. Plaintiff expects to be compensated. Defendant had a chance to reject and did not.

10. © 2008 West Legal Studies in Business A Division of Thomson Learning 10 Contract Performance  Executed vs. Executory Contracts. Executed: fully performed by both sides. Executory: at least one of the parties has not performed.

11. © 2008 West Legal Studies in Business A Division of Thomson Learning 11 Contract Enforceability  Valid Contract. Four Elements: Agreement, Consideration, Legal Purposes, Parties have legal capacity.  Voidable Contract. Valid contract that is legally defective and can be avoided (rescinded) by one of the parties.  Void Contract. No contract at all.

12. © 2008 West Legal Studies in Business A Division of Thomson Learning 12 Quasi Contracts  Implied-in-Law Contracts (Quasi Contract). Fictional, created by court to avoid unjust enrichment. Limitations on quasi-contractual recovery. Cannot be used when an actual contract exists.

13. © 2008 West Legal Studies in Business A Division of Thomson Learning 13 Requirements of the Offer  An agreement consists of a valid offer and acceptance.  An offer is the Offeror’s promise to perform.

14. © 2008 West Legal Studies in Business A Division of Thomson Learning 14 Requirements of the Offer  An offer requires serious, objection intention. Opinions are not offers. Good Intentions are not offers. Preliminary Negotiations are not offers. Agreements to Agree are not offers.  Reasonably definite terms.  Communication to Offeree.

15. © 2008 West Legal Studies in Business A Division of Thomson Learning 15 Termination of the Offer  Termination of the Offer. By Act of the Parties. Revocation by the Offeror (unless irrevocable). Rejection by the Offeree (or counteroffer). Operation of Law: lapse of time, destruction, death or incompetence, supervening illegality.

16. © 2008 West Legal Studies in Business A Division of Thomson Learning 16 Acceptance  Voluntary act by Offeree that shows assent to terms of original offer.  Mirror Image Rule. Offeree must unequivocally accept offer. Additional terms may be considered a counteroffer.  Acceptance by Silence.  Authorized Means of Communication is either express or implied by form of offer (e.g., U.S. mail, fax, email).

17. © 2008 West Legal Studies in Business A Division of Thomson Learning 17 “Mailbox Rule”  “Offeree accepts offer when the acceptance is dispatched to Offeror in the form it was received, unless offer requires a different method (e.g., Fed-Ex, or receipt by Offeror).  Exceptions: Acceptance is not properly dispatched. Offer stipulates not accepted until received. Offeree rejects then accepts. First communication received determines whether contract is formed.

18. © 2008 West Legal Studies in Business A Division of Thomson Learning 18 Consideration  Consideration is value given in return for a promise.  Elements: Something of legally sufficient value given in exchange for a promise and That is bargained for between the parties.

19. © 2008 West Legal Studies in Business A Division of Thomson Learning 19 Contracts That Lack Consideration  Pre-Existing Duty.  Unforeseen Difficulties.  Rescission and New Contract.  Past Consideration.  Illusory Promises.

20. © 2008 West Legal Studies in Business A Division of Thomson Learning 20 Settlement of Claims  Accord and Satisfaction.  Release.  Covenant Not to Sue.

21. © 2008 West Legal Studies in Business A Division of Thomson Learning 21 Promissory Estoppel  Promissory Estoppel (“detrimental reliance”) doctrine applies when a person relies on the promise of another to her legal detriment.  Promisor is “estopped” (precluded) from revoking the promise. There must be: Clear and definite promise with substantial reliance. Justice is served by enforcement of the promise.