1. Chapter 11 Formation of Traditional And Online Contracts
PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 5E, by Henry R. Cheeseman
Chapter 11
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. Sources of Contract Law
Common law of contracts
Uniform Commercial Code (UCC)
Restatement of the Law of Contracts
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5. Classifications of Contracts
Bilateral and unilateral contracts
Express and implied-in-fact contracts
Quasi-contract (implied-in-law)
Formal and informal contracts
Valid, void, voidable, and unenforceable contracts
Executed and executory contracts
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6. Bilateral and Unilateral Contracts
Offer is accepted by a promise
Unilateral
Offer can only be accepted by performance of an act by the offeree
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7. Express or Implied-in-Fact
Express contract
Terms are stated, either written or oral
Implied-in-fact
Plaintiff provided goods or services
Plaintiff expected to be paid
Defendant had the opportunity to reject the goods or services and did not
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8. Quasi-Contract (Implied-in-Law)
Equitable doctrine to prevent unjust enrichment
Elements of quasi-contract
Plaintiff conferred a benefit on the defendant.
It would be unjust not to require the defendant to pay for the benefit received.
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9. Formal and Informal Contracts
Formal contracts require a special form or method of creation.
Negotiable instruments
Letters of credit
Recognizances
Contracts under seal
Informal contracts include all other contracts that do not qualify as formal contracts.
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10. Valid, Void, Voidable
Valid – meets all the required elements of an enforceable contract
Void – has no legal effect
Voidable – at least one party has the option to avoid enforcement
Unenforceable – there is a legal defense to enforcement of the contract
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11. Executed and Executory Contracts
Executed – contract has been fully performed
Executory – contract has not been fully performed by at least one party
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12. Elements of an Enforceable Contract
Agreement
Consideration
Contractual capacity
Lawful object
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13. Agreement
Agreement
The manifestation by two or more persons of the substance of a contract
Requires an offer and an acceptance
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14. Parties to an Agreement
Offeror
Person who makes an offer
Offeree
Person to whom an offer has been made
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15. Requirements of an Offer
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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16. Objective Intent
The intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties.
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17. Auctions Auction with reserve Auction without reserve
Is considered an invitation to make an offer
The seller has the right to withdraw the goods from sale.
Auction without reserve
The seller is considered an offeror.
The seller must accept the highest bid.
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18. 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
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19. 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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20. Acceptance The offeree’s acceptance must be unequivocal.
The terms of the acceptance must match the terms of the offer.
Mirror image rule
Acceptance is effective when sent.
Mailbox rule
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21. Elements of Consideration
Something of legal value must be given.
There must be a bargained-for exchange.
Gift promises (gratuitous promises) are unenforceable because they lack consideration.
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22. Other Promises Lacking Consideration
Illegal consideration
Illusory promises
Moral obligation
Preexisting duty
Past consideration
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23. 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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24. Minors Infancy doctrine Parties’ duties at disaffirmance
Allows minors to disaffirm (cancel) most contracts they have entered into with adults
Parties’ duties at disaffirmance
Minor has the duty to return the property he or she received in the condition it is in at the time of disaffirmance.
Competent party has the duty to return all the consideration received from the minor.
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25. Contract Issues With Minors
Ratification
If a contract is not disaffirmed within a reasonable time after reaching majority, it is considered ratified.
Necessaries of life
A minor may not disaffirm contracts for necessaries of life.
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26. Mentally Incompetent Persons
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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27. Intoxicated Persons
Most contracts entered into by intoxicated persons are voidable by that person.
A person who disaffirms a contract based on intoxication generally must return the other party to status quo.
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28. Illegality Contracts having an illegal object are illegal contracts.
Illegal contracts are void; neither party may enforce.
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29. Illegality Contracts contrary to statutes Gambling statutes Usury laws
Sabbath laws or blue laws
Licensing statutes
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30. Illegality Contracts Contrary to Public Policy Immoral contracts
Contracts in restraint of trade
Certain covenants not to compete
Some exculpatory clauses
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31. Covenant Not to Compete
A noncompete agreement related to an employment contract or sale of a business is legal if it is reasonable in 3 areas:
The line of business protected
The geographical area protected
The duration of the restriction
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32. Exculpatory Clauses
A contract provision that relieves a party of tort liability.
An exculpatory clause is not effective if:
It is against the public interest.
It is the result of superior bargaining power.
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