1. Chapter 10 Formation of Traditional And Online Contracts
PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman
Chapter 10
Formation of Traditional
And Online Contracts
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2. What Is a Contract?
A contract is an agreement that is enforceable by a court of law or equity
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3. 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
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4. Elements of an Enforceable Contract
Agreement
Consideration
Contractual capacity
Lawful object
Contract
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5. Sources of Contract Law
Common law of contracts
Uniform Commercial Code
Restatement of the Law of Contracts
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6. Classifications of Contracts
Bilateral and unilateral contracts
Express and implied contracts
Formal and informal contracts
Executed and executory contracts
Valid, void, voidable, and unenforceable contracts
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7. Equity and Contracts Equity Quasi- or implied-in-law contract
A doctrine that permits judges to made decisions based on fairness, equality, moral rights, and natural law
Quasi- or implied-in-law contract
An equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed. The doctrine is intended to prevent unjust enrichment or unjust detriment
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8. Agreement Agreement Parties
The manifestation by two or more persons of the substance of a contract
Parties
Offeror
Person who makes an offer
Offeree
Person to whom an offer has been made
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9. Requirements of an Offer
For an offer to be effective:
The offeror must objectively intend to be bound by the offer
The terms of the offer must be definite or reasonably certain
The offer must be communicated to the offeree
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10. Objective Theory of Contracts
A theory that says the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties
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11. Termination of an Offer by Action of the Parties
Revocation of the offer by the offeror
Rejection of the offer by the offeree
Counteroffer by the offeree
Promissory estoppel
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12. Termination of the Offer by Operation of Law
Destruction of the subject matter
Death or incompetence of the offeror or the offeree
Supervening illegality
Lapse of time
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13. Acceptance
Only the offeree can legally accept an offer and create a contract
The offeree’s acceptance must be unequivocal
Mirror image rule
Silence is not considered acceptance even if the offeror states that it is
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14. Mode of Acceptance
An offeree must accept an offer by an authorized means of communication
Express authorization
Acceptance must be by a specified means of communication
Implied authorization
Mode of acceptance is implied from what is customary in similar transactions, usage of trade, or prior dealings between the parties
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15. Elements of Consideration
Something of legal value must be given, e.g., either a legal benefit must be received or a legal detriment suffered
There must be a bargained-for exchange
Gift promises (gratuitous promises) are unenforceable because they lack consideration
Nominal consideration
Nominal consideration is not considered legally sufficient in many states
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16. Persons Who May Lack the Capacity to Contract
Minors
Persons who have not reached the age of majority
Mentally incompetent persons
Intoxicated persons
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17. Minors Infancy doctrine Duties
Allows minors to disaffirm (cancel) most contracts they have entered into with adults
Duties
Restitution
Minor’s
Competent party’s
Restoration
Ratification
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18. Special Types of Contracts for which Minors May be Liable
Medical, surgical, and pregnancy care
Psychological counseling
Health and life insurance
Performance of duties relating to stock and bond transfers, bank accounts, etc.
Educational loan expenses
Contracts to support children
Contracts to enlist in the military
Artistic, sports, and entertainment contracts
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19. Disaffirmance of Contracts Based on Legal Insanity
If a person is adjudged insane, the contract is void; neither party can enforce the contract
If the person is insane, but not adjudged insane, the contract is voidable by the insane person; the competent party cannot void the contract
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20. Disaffirmance of Contracts Based on Intoxication
Most states provide that contracts entered into by intoxicated persons are voidable by that person
A person who disaffirms a contract based on intoxication generally must be returned to the status quo
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21. Illegality—Contracts Contrary to Statutes
Usury laws
Gambling statutes
Sabbath laws or blue laws
Contracts to commit a crime
Licensing statutes
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22. Illegality—Contracts Contrary to Public Policy
Immoral contracts
Contracts in restraint of trade
Covenants not to compete
Exculpatory clauses
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23. Effect of Illegality
Illegal contracts are void; therefore, the parties cannot sue for nonperformance
Exceptions
Innocent persons who were justifiably ignorant of the law or fact that made the contract illegal
Persons who were induced to enter into the contract by fraud, duress, or undue influence
Persons who entered into an illegal contract withdraw before the illegal act is performed
Persons who were less at fault than the other party for entering into an illegal contract
In pari delicto
When both parties are equally at fault in an illegal contract
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24. Unconscionable Contracts
Elements of an unconscionable contract:
The parties possessed severely unequal bargaining power
The dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms
The adhering party had no reasonable alternative
Remedies for an unconscionable contract:
Court can refuse to enforce the contract
Court can refuse to enforce the unconscionable clause but enforce the remainder of the contract
Court can limit the applicability of any unconscionable clause to avoid any unconscionable result
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25. Third Party Rights
Assignment—the transfer of contractual rights by the obligee to another party
Assignor—the obligee who transfers the right
Assignee—the party to whom the right has been transferred
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26. Beneficiaries Intended beneficiary Incidental beneficiary
A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the obligor
Incidental beneficiary
A party who is unintentionally benefited by other people’s contracts
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