1. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 12 Contracts Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

2. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Definition of Contract A contract is a binding agreement between two or more parties. A contract arises when an offer is accepted with contractual intent (the intent to make a binding agreement) and the acceptance is communicated properly. CONTRACT = = Acceptance Offer +

3. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Parties may be: individuals, partnerships, corporations, governments ShipperCarrier Parties to a Transportation Contract InsurerInsured Parties to an Insurance Policy Landlord (Lessor) Tenant (Lessee) Parties Agreeing Upon Occupation of a Building for Money (a Lease) VendorVendee Parties to a Sales Contract Promisor (Obligor) Promisee (Obligee) General: Examples: Parties to a Contract

4. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Classes of Contracts FORMAL contract under seal, contracts of record, negotiable instruments INFORMAL all other contracts OR EXPRESS spoken or written words IMPLIED created by law based on acts or conduct of parties OR

5. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Classes of Contracts OR VALID binding and enforceable VOID without legal effect VOIDABLE circumstances allows cancellation at option of one party

6. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Classes of Contracts OR EXECUTED completely performed EXECUTORY something remains to be done OR BILATERAL one promise given in exchange for another UNILATERAL one party promises to perform after the other party does some designated act

7. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Contract Example 1 Parties This contract is executed between the Lookout Alarm system, herein called System, of 276 West Jackson Street, Phoenix, Arizona, and A.J. Armstrong, herein called Homeowner, of 737 Inwood Drive, Phoenix, Arizona Installation System agrees to install a burglar alarm system at the above address of the homeowner, in accordance with the specifications that are attached hereto. Payment Homeowner agrees to pay System for the above installation the sum of $4,863.00, $663.00 being paid upon execution of this contract and the balance of $4,200.00 being paid within 90 days following satisfactory completion of the work by System. Lookout Alarm System by S.J. McRory S.J. McRory, President July 1, 2001 Date A.J. Armstrong July 1, 2001 Date } 2 } 3 4 5 }

8. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Other Types of Contracts Option Contract: gives one party the right to enter into a second contract at a later time. Right of First Refusal: obligates the offeror to make the offer to the person holding this right first.

9. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Quasi Contracts In certain situations, the law regards it as unjust for a person to receive a benefit and not pay for it. In such a case, the law of quasi contracts allows the performing person to recover the reasonable value of the benefit conferred on the benefited person even though no contract between them requires any payment.

10. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 Contracting on the Internet Forming electronic contracts involves the same principles as “real space” contracts. Online contracting involves statutes of fraud issues. B2B contracts (Business to Business). B2C contracts (Business to Consumers). E-Sign and UETA help enforce electronic signatures.