1. Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6 th Edition by Henry R. Cheeseman Chapter 9 Nature of Traditional and Online Contracts

2. 9 - 2Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. A contract is an agreement that is enforceable by a court of law or equity.

3. 9 - 3Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Introduction (1 of 2) Contracts are the basis of many daily activities. They provide the means for individuals and businesses to sell and otherwise transfer property, services, and other rights. Without enforceable contracts, commerce would collapse.

4. 9 - 4Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Introduction (2 of 2) Contracts are voluntarily entered into by parties. private law The terms of the contract become private law between the parties.

5. 9 - 5Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Legally Enforceable Contract If one party fails to perform as promised, the other party can use the court system to enforce the contract and recover damages or other property.

6. 9 - 6Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Parties to a Contract (1 of 2) Every contract involves at least two parties: Offeror Offeror – the party who makes an offer to enter into a contract. Offeree Offeree – the party to whom an offer to enter into a contract is made.

7. 9 - 7Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Parties to a Contract (2 of 2) OfferorOfferorOffereeOfferee Offer Acceptance Offeror makes an offer to the offeree Offeree has the power to accept the offer and create a contract

8. 9 - 8Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Elements of a Contract (1 of 2) Agreement There must be agreement between the parties offer acceptance This requires an offer by the offeror and an acceptance of the offer by the offeree There must be mutual assent by the partiesAgreement There must be agreement between the parties offer acceptance This requires an offer by the offeror and an acceptance of the offer by the offeree There must be mutual assent by the partiesConsideration The promise must be supported by a bargained- for consideration that is legally sufficient Gift promises and moral obligations are not considered supported by valid considerationConsideration The promise must be supported by a bargained- for consideration that is legally sufficient Gift promises and moral obligations are not considered supported by valid consideration

9. 9 - 9Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Elements of a Contract (2 of 2) Contractual Capacity The parties to a contract must have contractual capacity Certain parties, such as persons adjudged to be insane, do not have contractual capacity Contractual Capacity The parties to a contract must have contractual capacity Certain parties, such as persons adjudged to be insane, do not have contractual capacity Lawful Object The object of the contract must be lawful Contracts to accomplish illegal objects or contracts that are against public policy are void Lawful Object The object of the contract must be lawful Contracts to accomplish illegal objects or contracts that are against public policy are void

10. 9 - 10Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Defenses to the Enforcement of a Contract (1 of 2) Genuineness of Assent Genuineness of Assent The consent of the parties to create a contract must be genuine There is no real consent if the consent is obtained by: Duress Undue influence Fraud

11. 9 - 11Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Defenses to the Enforcement of a Contract (2 of 2) Writing and Form Writing and Form The law requires that certain contracts be in writing or in a certain form. Failure of these contracts to be in writing or be in proper form may be raised against the enforcement of the contract.

12. 9 - 12Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. The Evolution of the Modern Law of Contracts Classical law of contracts Classical law of contracts – parties were free to negotiate contract terms without government interference. Modern law of contracts Modern law of contracts – parties may negotiate contract terms subject to government regulation.

13. 9 - 13Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Sources of Contract Law (1 of 2) The Common Law of Contracts The Common Law of Contracts Contract law developed primarily by state courts The Uniform Commercial Code (UCC) The Uniform Commercial Code (UCC) Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions

14. 9 - 14Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Sources of Contract Law (2 of 2) The Restatement of the Law of Contracts The Restatement of the Law of Contracts Compilation of model contract law principles drafted by legal scholars The Restatement is not law However, lawyers and judges often refer to it for guidance in contract disputes

15. 9 - 15Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Objective Theory of Contracts reasonable person standard Holds that the intent to enter into an express or implied-in-fact contract is judged by the reasonable person standard The subjective intent of a party to enter into a contract is irrelevant

16. 9 - 16Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Uniform Computer Information Transaction Act (UCITA) Establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses Addresses most of the legal issues that are encountered while conducting e- commerce over the Internet It is a model act that is the basis for the creation and enforcement of cyberspace contracts and licenses

17. 9 - 17Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Formation (1 of 4) Bilateral Contract A contract entered into by way of exchange of promises of the parties “A promise for a promise” Bilateral Contract A contract entered into by way of exchange of promises of the parties “A promise for a promise” Unilateral Contract A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree “A promise for an act” Unilateral Contract A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree “A promise for an act”

18. 9 - 18Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Formation (2 of 4) Express Contract An agreement that is expressed in written or oral words Express Contract An agreement that is expressed in written or oral words Implied-in-fact Contract A contract where agreement between parties has been inferred from their conduct Implied-in-fact Contract A contract where agreement between parties has been inferred from their conduct

19. 9 - 19Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Formation (3 of 4) Quasi-Contracts (Implied-in-Law Contracts) Allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties unjust enrichment unjust detriment Intended to prevent unjust enrichment and unjust detriment Quasi-Contracts (Implied-in-Law Contracts) Allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties unjust enrichment unjust detriment Intended to prevent unjust enrichment and unjust detriment

20. 9 - 20Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Formation (4 of 4) Formal Contracts Contracts that require a special form or method of creation Contracts Under Seal Recognizances Negotiable Instruments Letters of Credit Formal Contracts Contracts that require a special form or method of creation Contracts Under Seal Recognizances Negotiable Instruments Letters of Credit Informal Contracts No special form or method is required for their creation Fully enforceable and may be sued upon if breached, e.g.: Leases Sales Contracts Service Contracts Informal Contracts No special form or method is required for their creation Fully enforceable and may be sued upon if breached, e.g.: Leases Sales Contracts Service Contracts

21. 9 - 21Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Enforceability (1 of 2) Valid Contract Contract that meets all of the essential elements to establish a contract Enforceable by at least one of the parties Valid Contract Contract that meets all of the essential elements to establish a contract Enforceable by at least one of the parties Void Contract A contract that has no legal effect Neither party is obligated to perform Neither party can enforce the contract Void Contract A contract that has no legal effect Neither party is obligated to perform Neither party can enforce the contract

22. 9 - 22Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Enforceability (2 of 2) Voidable Contract Contract where one or both parties have the option to avoid their contractual obligations If a contract is avoided, both parties are released from their contractual obligations Voidable Contract Contract where one or both parties have the option to avoid their contractual obligations If a contract is avoided, both parties are released from their contractual obligations Unenforceable Contract A contract where the essential elements to create a valid contract are not met However, there is some legal defense to the enforcement of the contract Unenforceable Contract A contract where the essential elements to create a valid contract are not met However, there is some legal defense to the enforcement of the contract

23. 9 - 23Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Classifications of Contracts: Performance Executed Contract A contract that has been fully performed on both sides A completed contract Executed Contract A contract that has been fully performed on both sides A completed contract Executory Contract A contract that has not been fully performed by one or both parties Executory Contract A contract that has not been fully performed by one or both parties

24. 9 - 24Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. Equity A doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law.

25. 9 - 25Copyright © 2009 by Pearson Prentice-Hall. All rights reserved. The United Nations Convention on Contracts for the International Sale of Goods (CISG) Applies to contracts for the international sale of goods The buyer and seller must have their places of business in different countries Both of the nations must be parties to the convention, or The contract specifies that the CISG controls