1. Chapter 9 Formation of Traditional And E-Contracts

2. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-2 What Is a Contract? A contract is an agreement that is enforceable by a court of law or equity.

3. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-3 Parties to a Contract OfferorOfferee Offer Acceptance Offeror makes an offer to the offeree Offeree has the power to accept the offer and create a contract

4. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-4 E-Commerce and E-Contracts The sale and lease of goods, the sale of services and the licensing of software over the Internet. Cyberspace Economy

5. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-5 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

6. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-6 Bilateral and Unilateral Contracts Bilateral Offer is accepted by a promise Unilateral Offer can only be accepted by performance of an act by the offeree

7. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-7 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

8. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-8 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.

9. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-9 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.

10. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-10 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

11. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-11 Executed and Executory Contracts Executed – contract has been fully performed Executory – contract has not been fully performed by at least one party

12. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-12 Requirements of an Enforceable Contract Agreement Consideration Contractual capacity Lawful object

13. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-13 Agreement The manifestation by two or more persons of the substance of a contract Requires an offer and an acceptance

14. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-14 Parties to an Agreement Offeror Person who makes an offer Offeree Person to whom an offer has been made

15. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-15 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.

16. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-16 Objective Intent The intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties.

17. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-17 Auctions Auction with 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.

18. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-18 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

19. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-19 Termination of an Offer By operation of law: Destruction of the subject matter Death or incompetence of the offeror or the offeree Supervening illegality Lapse of time

20. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-20 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

21. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-21 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.

22. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-22 Other Promises Lacking Consideration Illegal consideration Illusory promises Moral obligation Preexisting duty Past consideration

23. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-23 Persons Who May Lack the Capacity to Contract Minors Persons who have not reached the age of majority Mentally incompetent persons Intoxicated persons

24. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-24 Minors Infancy doctrine 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.

25. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-25 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.

26. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-26 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.

27. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-27 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.

28. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-28 Illegality Contracts having an illegal object are illegal contracts. Illegal contracts are void; neither party may enforce.

29. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-29 Illegality Contracts contrary to statutes Gambling statutes Usury laws Licensing statutes

30. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-30 Illegality Contracts Contrary to Public Policy Immoral contracts Contracts in restraint of trade Certain covenants not to compete Some exculpatory clauses

31. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-31 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

32. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-32 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.

33. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-33 Unconscionable Contract Courts refuse to enforce in part or in whole because it is so oppressive or manifestly unfair as to be unjust

34. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 9-34