1. Chapter 9

2.  According to the Restatement (Second) of Contracts  “A promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty”  Legally enforceable contract: A contract in which if one party fails to perform as promised:  The other party can use the court system to enforce the contract and recover damages or another remedy 9-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

3. 9-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

4. This requires an offer by the offeror and an acceptance of the offer by the offeree Agreement A promise must be supported by a bargained- for consideration that is legally sufficient Consideration The parties must have contractual capacity for the contract to be enforceable against them Contractual capacity The object of a contract must be lawful Lawful object 9-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

5.  Genuineness of assent  The consent of the parties to create a contract must be genuine  Writing and form  The law requires that certain contracts be in writing or in a certain form 9-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

6.  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” 9-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

7.  Formal contract: A contract that requires a special form or method of creation  Most common forms of formal contracts are ▪ Negotiable instrument ▪ Letter of credit ▪ Recognizance ▪ Contract under seal  Informal contract: A contract that is not formal  Valid informal contracts are fully enforceable and may be sued upon if breached 9-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

8.  Executory contract: A contract that has not been fully performed by either or both sides  Executed contract: A contract that has been fully performed by both sides  A completed contract  Express contract: An agreement that is expressed in written or oral words 9-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

9.  Implied-in-fact contract: A contract in which agreement between parties has been inferred from their conduct  Quasi-contract (implied-in-law contract): An equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed  The doctrine is intended to prevent unjust enrichment and unjust detriment 9-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

10. ClassificationDescription Valid contractA contract that meets all the essential elements of establishing a contract. Void contractNo contract exists. Voidable contractA contract in which at least one party has the option of voiding the contract Unenforceable contractA contract that cannot be enforced because of a legal defense 9-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

11. ClassificationDescription Executed contractA contract that is fully performed on both Executory contractA contract that is not fully performed by one or both parties 9-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

12.  The manifestation by two or more persons of the substance of a contract  Requirements of an offer  The 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 9-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

13. 9-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

14.  The intent to enter into a contract is determined using the objective theory of contracts  Objective theory of contracts: A theory that says the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties 9-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

15.  The seller offers goods for sale through an auctioneer  Auction with reserve  The seller retains the right to refuse the highest bid and withdraw the goods from sale  Unless expressly stated otherwise, an auction is an auction with reserve  Auction without reserve  An auction in which the seller expressly gives up his or her right to withdraw the goods from sale  The seller must accept the highest bid 9-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

16.  Revocation of an offer: Withdrawal of an offer by the offeror that terminates the offer  Rejection of an offer: Express words or conduct by the offeree that rejects an offer  Rejection terminates the offer  Counteroffer: A response by an offeree that contains terms and conditions different from or in addition to those of the offer  A counteroffer terminates the previous offer 9-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

17.  Lapse of time  A stated time period after which an offer terminates  If no time is stated, an offer terminates after a reasonable time  Termination by operation of law occurs if  The subject matter of the offer is destroyed through no fault of either party  Either the offeror or the offeree dies or becomes incompetent  The object of the offer is made illegal by law 9-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

18. 9-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

19.  An offeree’s acceptance must be unequivocal  Mirror image rule: A rule which states that for an acceptance to exist, the offeree must accept the terms as stated in the offer  Acceptance-upon-dispatch rule (mailbox rule)  A rule which states that an acceptance is effective when it is dispatched, even if it is lost in transmission 9-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

20.  Something of legal value given in exchange for a promise  Legal value: Support for a contract when either  The promisee suffers a legal detriment or  The promisor receives a legal benefit  Bargained-for exchange: Exchange that parties engage in that leads to an enforceable contract 9-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

21.  A promise that is unenforceable because it lacks consideration  A completed gift promise cannot be rescinded for lack of consideration 9-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

22. ContractDescription Illegal consideration A promise to refrain from doing an illegal act. Such a promise does not support a contract. Illusory promiseA contract into which both parties enter but one or both of the parties can choose not to perform their contractual obligations. Thus, the contract lacks consideration. Preexisting dutySomething a person is already under an obligation to do. A promise lacks consideration if a person promises to perform a preexisting duty. Past considerationA prior act or performance. Past consideration (e.g., prior acts) will not support a new contract. New consideration must be given. 9-22 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

23.  A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults  The minor must be restored to the same position he or she was in before the minor entered into the contract  Minors are obligated to pay for the necessaries of life that they contract for 9-23 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

24.  Adjudged insane: Declared legally insane by a proper court or administrative agency  A contract entered into by a person adjudged insane is void  Insane but not adjudged insane: Being insane but not having been adjudged insane by a court or an administrative agency  A contract entered into by such person is generally voidable  Some states hold that such a contract is void 9-24 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

25.  A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence  A contract is voidable only if the person was so intoxicated when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction 9-25 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

26.  Contracts contrary to statutes  Contracts to perform activities that are prohibited by statute are illegal contracts  Illegal contract: A contract that has an illegal object ▪ Such contracts are void  Contract contrary to public policy: A contract that has a negative impact on society or that interferes with the public’s safety and welfare 9-26 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

27.  A contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence  Also called release of liability clause 9-27 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

28.  A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust  Elements of an unconscionable contract  The parties possessed severely unequal bargaining power  The dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms  The adhering party had no reasonable alternative 9-28 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

29.  The sale and lease of goods and services and other property and the licensing of software over the Internet or by other electronic means  Electronic contract: A contract that is formed electronically  Electronic license: An electronic contract that licenses the use of computer and software information 9-29 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

30.  A model act that  Establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses  Addresses most of the legal issues that are encountered while conducting e-commerce over the Internet 9-30 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

31. 9-31 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.