CHAPTER 9 INTRODUCTION TO CONTRACT LAW AND CONTRACT THEORY DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 THE IMPORTANCE OF CONTRACT LAW Law of contracts affects all aspects of daily life. Commercial Law Contracts: having to do with commerce. Common Law Contracts: derived from the judgments and decrees of courts. Law of contracts affects all aspects of daily life. Commercial Law Contracts: having to do with commerce. Common Law Contracts: derived from the judgments and decrees of courts.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 THE IMPORTANCE OF CONTRACT LAW Definition of a Contract: – Legally binding. – Legally enforceable promise or set of promises. – Between two or more competent parties. – Law recognizes a duty. Definition of a Contract: – Legally binding. – Legally enforceable promise or set of promises. – Between two or more competent parties. – Law recognizes a duty.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 ELEMENTS OF A CONTRACT Founded on an agreement. – An offer and acceptance on that offer. Supported by consideration. – Something bargained for and given in exchange for a promise. Made by parties having the capacity to contract. – The legal ability to contract. Founded on an agreement. – An offer and acceptance on that offer. Supported by consideration. – Something bargained for and given in exchange for a promise. Made by parties having the capacity to contract. – The legal ability to contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 ELEMENTS OF A CONTRACT Based on the parties’ genuine assent. – Voluntary involvement as a party to the contract. Grounded in a legal undertaking. – Subject matter must be legal. Expressed in proper form. – Written and oral contracts can be binding if rules are understood and followed. Based on the parties’ genuine assent. – Voluntary involvement as a party to the contract. Grounded in a legal undertaking. – Subject matter must be legal. Expressed in proper form. – Written and oral contracts can be binding if rules are understood and followed.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 FROM STATUS TO FREEDOM OF CONTRACT AND BACK AGAIN Feudal society set social hierarchies. Contract law calls for the performance of mutual duties and obligations. Law merchant and contracts were more important than status. Lawmakers lately have restricted freedom of contracts. Feudal society set social hierarchies. Contract law calls for the performance of mutual duties and obligations. Law merchant and contracts were more important than status. Lawmakers lately have restricted freedom of contracts.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 CLASSIFICATIONS 0F CONTRACTS Formal vs. Informal Contracts. Unilateral vs. Bilateral Contracts. Valid, Voidable, Void, and Unenforceable Contracts. Express vs. Implied Contracts. Executory vs.Executed Contracts. Quasi Contracts vs. Contracts Implied in Fact. Formal vs. Informal Contracts. Unilateral vs. Bilateral Contracts. Valid, Voidable, Void, and Unenforceable Contracts. Express vs. Implied Contracts. Executory vs.Executed Contracts. Quasi Contracts vs. Contracts Implied in Fact.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 CLASSIFICATION OF CONTRACTS Formal Versus Informal Contracts. – Formal Contracts need a seal. – Informal Contracts are simple and do not need a seal. Unilateral Versus Bilateral Contracts. – Unilateral Contracts is a promise on one side only. – Bilateral Contracts are promises on both sides. Formal Versus Informal Contracts. – Formal Contracts need a seal. – Informal Contracts are simple and do not need a seal. Unilateral Versus Bilateral Contracts. – Unilateral Contracts is a promise on one side only. – Bilateral Contracts are promises on both sides.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 CLASSIFICATION OF CONTRACTS Valid, Voidable, Void, and Unenforceable Contracts. – Valid Contract is legally binding and enforceable. – Voidable Contract can be affirmed or rejected at the option of one or more of the contracting parties. – Void Contract can never have any legal effect. Unenforceable Contracts will not be given effect by a court of law. Valid, Voidable, Void, and Unenforceable Contracts. – Valid Contract is legally binding and enforceable. – Voidable Contract can be affirmed or rejected at the option of one or more of the contracting parties. – Void Contract can never have any legal effect. Unenforceable Contracts will not be given effect by a court of law.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 CLASSIFICATION OF CONTRACTS Express Versus Implied Contracts. – Express Contracts the parties set forth their intentions specifically and definitely in writing or oral. – Implied Contracts is inferred from the actions or conduct of the parties. Express Versus Implied Contracts. – Express Contracts the parties set forth their intentions specifically and definitely in writing or oral. – Implied Contracts is inferred from the actions or conduct of the parties.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 CLASSIFICATION OF CONTRACTS Executory vs. Executed Contracts – Executory Contract is when a promise remains unfulfilled by one party. – Executed Contract is when the parties have fully performed the promise. Quasi Contracts versus Contracts Implied in Fact – Quasi Contracts are implied in law. – Implied in Fact Contracts hold that sufficient evidence exists for a court to determine that the parties were meant to contract with each other. Executory vs. Executed Contracts – Executory Contract is when a promise remains unfulfilled by one party. – Executed Contract is when the parties have fully performed the promise. Quasi Contracts versus Contracts Implied in Fact – Quasi Contracts are implied in law. – Implied in Fact Contracts hold that sufficient evidence exists for a court to determine that the parties were meant to contract with each other.