McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 Overview and Formation of Contracts

6-2 Written versus Oral Contracts While the word “contract” is often used to describe a written document, many contracts are not in writing and yet are enforceable.

6-3 Bilateral Contracts versus Unilateral Contracts A bilateral contract involves two promises and two performances. A unilateral contract involves one promise, followed by one performance, which then triggers a second performance.

6-4 Express Contracts versus Implied Contracts versus Quasi-Contracts An express contract is created when the parties have expressly agreed on the terms. An implied contract is one in which the agreement is reached by the parties actions. The law permits quasi-contracts to be enforceable where one party suffers losses as a result of another party’s unjust enrichment.

6-5 Valid versus Void Contracts When a contract has the necessary elements, it is said to be a valid contract. Void contracts are agreements that have not been formed in conformance with the law from the outset of the agreement and, thus, cannot be enforced by either party.

6-6 Voidable versus Unenforceable Contracts An unenforceable contract is one that meets the elements required by law for an otherwise binding agreement, but is subject to a legal defense. Example-the statutory requirement that certain contracts be in writing in order to be enforceable.

6-7 SOURCES OF CONTRACT LAW Statutory Law = UCC Common Law = Cases

6-8 State vs Federal Very little federal contract law  Usually only when contracting with federal government agency Almost all contract law is state law  Statutory and Common law

6-9 Elements of Contract Formation Agreement  Offer  Acceptance  “mailbox” rule

6-10 Elements of Contract Formation Consideration  Past, Present, Future issues  Pre-existing duty issues  Modification issues

6-11 Elements of Contract Formation Legality Capacity  Age  Mental capacity

6-12 Elements of Contract Formation Statute of Frauds Written vs Oral  Real property  Goods $500/over  12 month rule  Debts of another

6-13 learning outcomes checklist Distinguish between contracts based on categories and apply the correct source of law to specific contracts Explain the concept of mutual assent by defining the legal requirement of agreement Identify and explain the other requirements for the formation of a valid contract.

6-14 learning outcomes checklist 6- 4 List the events that terminate the power of acceptance and distinguish between termination through action of the parties versus operation of law Apply the mailbox rule to resolve a question of when acceptance is effective Articulate the legal requirement of consideration and identify which contracts do not require consideration.

6-15 learning outcomes checklist 6- 7 Give examples of circumstances where the legal requirements of capacity or legality are at issue Explain the concept of enforceability and genuine assent Categorize what contracts must be in writing to be enforceable and explain the minimum required terms that satisfy the law.