NATURE OF TRADITIONAL AND CHAPTER 9 NATURE OF TRADITIONAL AND E-CONTRACTS © 2010 Pearson Education, Inc., publishing as Prentice-Hall

A contract is an agreement that is enforceable by a court of law or equity.

Introduction Basis of many daily activities. Means for individuals and businesses to sell and otherwise transfer property, services, and other rights. Without enforceable contracts, commerce would collapse.

Introduction (continued) Contracts are voluntarily entered into by parties. Terms of the contract become private law between the parties.

Legally Enforceable Contract If one party fails to perform as promised, the other party can sue to enforce the contract and recover damages.

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 is made.

Parties to a Contract Offeror Offeree Offer Acceptance Offeror makes an offer to the offeree. Offeree has the power to accept the offer and create a contract.

To be enforceable, four basic requirements: Agreement Consideration Elements of a Contract Contractual Capacity Lawful Object 3

Elements of a Contract (continued) Agreement Offer by offeror and acceptance by offeree. Mutual assent.

Elements of a Contract (continued) Consideration The promise must be supported by bargained-for consideration that is legally sufficient. E.g., money, services

Elements of a Contract (continued) Contractual Capacity Parties must have capacity. Certain parties, such as minors or persons adjudged to be insane, do not have contractual capacity.

Elements of a Contract (continued) Lawful Object The object of the contract must be lawful. E.g., contracts to commit a crime have an illegal object. Contracts to accomplish illegal objects or contracts that are against public policy are void.

Defenses to Enforcement Genuineness of Assent Lacking if consent is obtained by: Duress Undue influence Fraud

Defenses to Enforcement (continued) Writing and Form Law requires that certain contracts be in writing or in a certain form.

Evolution of Contract Law Form contracts Government regulation Parties dealing at a distance, unequal bargaining power Freedom of contract Little government regulation Parties dealing face-to-face, equal bargaining power

Sources of Contract Law Common Law Contract law developed primarily by state courts. Uniform Commercial Code (UCC) Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions.

Sources of Contract Law (continued) Restatement of the Law of Contracts Compilation of model contract law principles drafted by legal scholars. Not legally binding. Lawyers and judges often refer to it for guidance in contract disputes.

Objective Theory of Contracts Would reasonable person believe that the parties intended to create a contract? Words and conduct Surrounding circumstances Subjective intent irrelevant.

E-Contracts Courts apply traditional contract rules State and federal statutes also apply E.g., Uniform Computer Information Transactions Act

Classification of Contracts Bilateral Contract “A promise for a promise.” E.g., “I promise to pay you $1,000 if you promise to paint my store.” Most common. Unilateral Contract “A promise for an act.” E.g., “I promise to pay you $1,000 if you paint my store.”

Classification of Contracts (continued) Formal Contracts Require a special form or method of creation. Contracts Under Seal Recognizances Negotiable Instruments Letters of Credit Informal Contracts No special form or method is required. Most contracts Leases Sales Contracts Service Contracts

Classification 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. Void Contract Contract that has no legal effect. Neither party is obligated to perform. Neither party can enforce the contract.

Classification of Contracts (continued) Voidable Contract One or both parties can avoid contractual obligations. If a contract is avoided, both parties are released from their contractual obligations. Unenforceable Contract Legal defense to the enforcement of the contract. Parties may voluntarily perform.

Classification of Contracts (continued) Executed Contract Fully performed on both sides. A completed contract. Executory Contract Not fully performed by either or both sides.

Classification of Contracts (continued) Express Contract Expressed in writing or verbally. Implied-in-fact Contract Agreement inferred by parties’ conduct. Implied-in-law contract No actual contract Court imposes agreement to avoid unjust enrichment.

Equity Doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law. Sometimes applied in contract cases.