Chapter 9 Nature of Traditional and E-Contracts

Definition of a Contract Contract: 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 Contracts are voluntarily entered into by parties Terms of the contract become private law between the parties 9-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Definition of a Contract 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 9-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Definition of a Contract Agreement Consideration Elements of a Contract Contractual Capacity Lawful Object 9-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 3

Definition of a Contract Elements of a contract Agreement Offer by offeror and acceptance by offeree Mutual assent Consideration The promise must be supported by bargained- for consideration that is legally sufficient Example – money, services 9-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Definition of a Contract Elements of a contract Contractual capacity Parties must have contractual capacity for the contract to be enforceable against them Minors or persons adjudged to be insane do not have contractual capacity 9-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Definition of a Contract Elements of a contract Lawful object Contracts to accomplish illegal objects or contracts that are against public policy are void 9-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Defenses to the Enforcement of a Contract Genuineness of Assent Lacking if consent is obtained by: Duress Undue influence Fraud Writing and Form 9-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Sources of Contract Law Common law of contracts Contract law developed primarily by state courts Uniform Commercial Code (UCC) Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions 9-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Sources of Contract Law 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 9-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Objective Theory of Contracts Intent to enter into a contract is judged by the reasonable person standard Words and conduct Surrounding circumstances Subjective intent is irrelevant 9-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. E-Contracts Courts apply traditional contract rules State and federal statutes also apply Uniform Computer Information Transactions Act (UCITA) A model act that establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses 9-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts Bilateral Contract The offeror’s promise is answered with the offeree’s promise of acceptance No act of performance is necessary Unilateral Contract The offeror’s offer can be accepted only by the performance of an act by the offeree 9-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts Formal Contracts Require a special form or method of creation Contracts Under Seal Recognizances Negotiable Instruments Letters of Credit 9-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts Informal Contracts No special form or method is required Leases Sales Contracts Service Contracts 9-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts 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 9-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts 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 9-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Classification of Contracts Executed Contract Fully performed on both sides A completed contract Executory Contract Not fully performed by either or both sides 9-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Express and Implied Contracts 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 9-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Case 9.1: Implied-in-Fact Contract Wrench LLC v. Taco Bell Corporation 256 F.3d 446, Web 2001 U.S. App. Lexis 15097 (2001) United States Court of Appeals for the Sixth Circuit Issue Have the plaintiffs Wrench LLC, Rinks, and Shields stated a cause of action for the breach of an implied-in-fact contract? 9-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Equity Equity: A doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law There is no right to a jury trial in an equitable action 9-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 9-22 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.