© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 NATURE OF TRADITIONAL AND E-CONTRACTS © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 9

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 A contract is an agreement that is enforceable by a court of law or equity.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Introduction Basis of many daily activities. Means for individuals and businesses to sell and otherwise transfer property, services, and other rights. Without enforceable contracts, commerce would collapse.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 Introduction (continued) Contracts are voluntarily entered into by parties. Terms of the contract become private law between the parties.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Legally Enforceable Contract If one party fails to perform as promised, the other party can sue to enforce the contract and recover damages.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 Parties to a Contract Every contract involves at least two parties. –Offeror – the party who makes an offer to enter into a contract. –Offeree – the party to whom an offer is made.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 Parties to a Contract OfferorOfferorOffereeOfferee Offer Acceptance Offeror makes an offer to the offeree. Offeree has the power to accept the offer and create a contract.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 To be enforceable, four basic requirements: Elements of a Contract AgreementConsideration Contractual Capacity Lawful Object

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Elements of a Contract (continued) Agreement –Offer by offeror and acceptance by offeree. –Mutual assent.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Elements of a Contract (continued) Consideration –The promise must be supported by bargained-for consideration that is legally sufficient. E.g., money, services

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 Elements of a Contract (continued) Contractual Capacity –Parties must have capacity. –Certain parties, such as minors or persons adjudged to be insane, do not have contractual capacity.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Elements of a Contract (continued) Lawful Object –The object of the contract must be lawful. E.g., contracts to commit a crime have an illegal object. –Contracts to accomplish illegal objects or contracts that are against public policy are void.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 Defenses to Enforcement Genuineness of Assent –Lacking if consent is obtained by: Duress Undue influence Fraud

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Defenses to Enforcement (continued) Writing and Form –Law requires that certain contracts be in writing or in a certain form.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 Evolution of Contract Law Freedom of contract Little government regulation Parties dealing face-to-face, equal bargaining power Freedom of contract Little government regulation Parties dealing face-to-face, equal bargaining power Form contracts Government regulation Parties dealing at a distance, unequal bargaining power Form contracts Government regulation Parties dealing at a distance, unequal bargaining power

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 Sources of Contract Law Common Law –Contract law developed primarily by state courts. Uniform Commercial Code (UCC) –Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 Sources of Contract Law (continued) Restatement of the Law of Contracts –Compilation of model contract law principles drafted by legal scholars. –Not legally binding. –Lawyers and judges often refer to it for guidance in contract disputes.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Objective Theory of Contracts Would reasonable person believe that the parties intended to create a contract? –Words and conduct –Surrounding circumstances Subjective intent irrelevant.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 E-Contracts Courts apply traditional contract rules State and federal statutes also apply –E.g., Uniform Computer Information Transactions Act

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 Classification of Contracts Bilateral Contract “A promise for a promise.” E.g., “I promise to pay you $1,000 if you promise to paint my store.” Most common. Bilateral Contract “A promise for a promise.” E.g., “I promise to pay you $1,000 if you promise to paint my store.” Most common. Unilateral Contract “A promise for an act.” E.g., “I promise to pay you $1,000 if you paint my store.” Unilateral Contract “A promise for an act.” E.g., “I promise to pay you $1,000 if you paint my store.”

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 Classification of Contracts (continued) Formal Contracts Require a special form or method of creation. –Contracts Under Seal –Recognizances –Negotiable Instruments –Letters of Credit Formal Contracts 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. Most contracts –Leases –Sales Contracts –Service Contracts Informal Contracts No special form or method is required. Most contracts –Leases –Sales Contracts –Service Contracts

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 22 Classification of Contracts (continued) 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 Contract that has no legal effect. Neither party is obligated to perform. Neither party can enforce the contract. Void Contract Contract that has no legal effect. Neither party is obligated to perform. Neither party can enforce the contract.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 23 Classification of Contracts (continued) Voidable Contract One or both parties can avoid contractual obligations. If a contract is avoided, both parties are released from their contractual obligations. Voidable Contract One or both parties can avoid contractual obligations. If a contract is avoided, both parties are released from their contractual obligations. Unenforceable Contract Legal defense to the enforcement of the contract. Parties may voluntarily perform. Unenforceable Contract Legal defense to the enforcement of the contract. Parties may voluntarily perform.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 24 Classification of Contracts (continued) Executed Contract Fully performed on both sides. A completed contract. Executed Contract Fully performed on both sides. A completed contract. Executory Contract Not fully performed by either or both sides. Executory Contract Not fully performed by either or both sides.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 25 Classification of Contracts (continued) Express Contract Expressed in writing or verbally. Express Contract Expressed in writing or verbally. Implied-in-fact Contract Agreement inferred by parties’ conduct. Implied-in-fact Contract Agreement inferred by parties’ conduct. Implied-in-law contract No actual contract Court imposes agreement to avoid unjust enrichment.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 26 Equity Doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law.Doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law. Sometimes applied in contract cases.Sometimes applied in contract cases.