Chapter 8— Introduction to Contracts – Classifications, Terminology and Formation REED SHEDD PAGNATTARO MOREHEAD F I F T E E N T H E D I T I O N McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

8-2 A contract involves a promise or commitment (or exchanges of promises or commitments) to do or not to do something. Introduction

8-3 Learning Objectives  To introduce to fundamental concepts of contracts.  To understand how contracts are classified and the terminology used to describe contracts.  To appreciate the requirements needed to create a contractually-enforced commitment.  To learn how the required elements of a contract are used by courts to decide whether or not a contract exists.  To comprehend how contracts can benefit parties other than the original parties to an agreement.

8-4 think TANK think TANKthink All promises are legal contracts. a. True b. False

8-5 Contract  May not need to be formal or written  Promise to perform or not perform  Legally enforceable  Improves buyer/seller relationship

8-6 Legislation Uniform Commercial Code Uniform Commercial Code Contracts for goods Contracts for goods Common Law Judges’ decisions Judges’ decisions Contracts for other than goods Contracts for other than goods Contract law comes from either Sources of Contract Law

8-7 Breach Of Contract   Party does not perform  Remedies- mitigate damages Negotiated Settlement Arbitration Damage Award SpecificPerformance Rescission Restitution

8-8 Contract Classifications Express- Terms TermsDiscussedImplied-In- Fact- No Discussion But Implied from Contract Implied-In- Law- NeitherDiscussion Nor Conduct But One Party Unduly Enriched Bilateral/ Unilateral

8-9 Bilateral Contract Paul Pearl Promise Promise

8-10 Alex Pat Promise Performance Unilateral Contract

8-11 Contract Enforcement  Enforceable- court uphold validity  Unenforceable- party has justifiable reason for noncompliance  Valid- essential requirements present  Void- lacks validity/enforceability  Voidable- party has right to withdraw

8-12 Contract Performance  Executed- promises performed  Executory- promises not yet performed  Performance important in more complicated transactions

8-13 Contract Formation Offer Offeror Acceptance Offeree AGREEMENT Capacity and Legality Supported by Consider- ation

8-14 Offer Offeror Acceptance Offeree  Intent/Commitment  Definiteness  Termination  Acceptance Bilateral- Promise Bilateral- Promise Unilateral- Performance Unilateral- Performance Mirror Image Rule Mirror Image Rule Silence = Acceptance Silence = Acceptance Deposited Acceptance Deposited Acceptance Mailbox Rule Mailbox Rule Offer and Acceptance

8-15 Offer Offeror Acceptance Offeree Offer Termination  Contract Provision  Lapse Of Time  Rejection  Revocation  Destruction Of Subject  Offeror’s Death or Insanity  Performance Becoming Illegal

8-16 Offeror Offeree  Something Of Legal Value  Something Bargained For Supported By Consideration OfferAcceptance AGREEMENT Consideration

8-17 Promissory Estoppel No consideration Reliance on promise Economic injury

8-18 Capacity of Parties  Minors Under age 18 Exceptions for necessaries Voidable/disaffirm  Intoxicated persons/mentally incompetent or impaired

8-19 Voidable Contracts  Fraud  Misrepresentation  Duress  Undue Influence  Mistake Mutual Unilateral  Mutual Assent

8-20 Lawful Purpose  Restraint Of Trade- Illegal/Void  Examples Gambling Usurious Unlicensed Exculpatory Unconscionable Prohibited  Covenant Not To Compete

8-21 Third Party Rights 3 rd parties may be involved in contracts intended unforseen 3 rd parties beneficiaries creditor donee incidental

8-22 Other Contract Issues  Assignment Transfer of rights to contract Notice to obligator  Certain contracts cannot be assigned  Novations Original parties relieve obligor from liability Substitute made

8-23 pop QUIZ pop QUIZpop George, a handyman, is hired to enclose the porch on Peter’s vacation cottage in the off-season. No one is around Peter’s cottage or any of the surrounding cottages. George is accidentally let in to the wrong cottage by the property manager and encloses the porch on Joan’s cottage. Does George have a remedy in contract to be paid for his work? a.Yes b.No