1. Contract Law: A Beginning CHAPTER SIX

2. 6 | 2 Copyright © Houghton Mifflin Company. All rights reserved. What a Contract Is A contract is a legally enforceable agreement between two or more parties. In forming a contract each party accepts a legally binding obligation to perform, and also the legally binding right to receive, a performance. If one party does not perform as agreed, the other party will be entitled to a remedy at law or a remedy at equity. Generally a social obligation where failure to perform by one party would not cause legal damages to the other does not create legally binding contract.

3. 6 | 3 Copyright © Houghton Mifflin Company. All rights reserved. Essential Elements of a Contract The law recognizes four essential elements of a contract. All four must be present for a contract to form. –Agreement: one party makes an offer (offeror); the person to whom the offer is made (offeree) can accept or reject the offer. –Consideration: each party is agreeing to exchange something of value. –Competent parties: each party to the contract must be of legal age, mentally competent and not under the influence of drugs or alcohol. –Legal purpose: the contract must not be for a purpose which is against the law.

4. 6 | 4 Copyright © Houghton Mifflin Company. All rights reserved. Contract Terminology Bilateral Versus Unilateral Contracts –Bilateral contracts: The offeror requests a return promise from the offeree which shows acceptance of the offer. Both parties have promised to perform. –Unilateral contracts: The offer calls for an act. Performance of the requested act is the acceptance of the offer. (An offer in the newspaper of a reward to return a lost pet is a unilateral offer.)

5. 6 | 5 Copyright © Houghton Mifflin Company. All rights reserved. Contract Terminology (continued) Valid, Void, Voidable, and Unenforceable Contracts –Valid contract: contains all the essential elements of a contract: Agreement, Consideration, Competent Parties, and Legal Purpose –Void contract: has no legal effect and neither party can enforce the contract. Void contracts often lack one of the essential elements of a contract.

6. 6 | 6 Copyright © Houghton Mifflin Company. All rights reserved. Contract Terminology (continued) Valid, Void, Voidable, and Unenforceable Contracts (continued) –Voidable contract: a contract where one of the parties can legally avoid its obligation. –Unenforceable contract: a contract that is legal in all respects, except that there is a legal reason that the contract will not be enforced.

7. 6 | 7 Copyright © Houghton Mifflin Company. All rights reserved. Formal and Informal Contracts A formal contract must be written and contain certain formalities (e.g. a particular form of language) Informal contracts are often implied –These contracts do not have to be written unless required by statute –If written, the contract should contain the date, name and address of included parties, consideration of parties, and signature of parties

8. 6 | 8 Copyright © Houghton Mifflin Company. All rights reserved. Express Versus Implied Contracts Express Contract – a contract where the agreement’s terms have been specifically stated either orally or in writing. Implied Contracts – the result of a situation where the actions of the parties indicate that they did in fact want to form a contract. –Courts can also imply a contract to promote justice and fairness and prevent unjust enrichment of one party. These contracts are known as quasi contracts.

9. 6 | 9 Copyright © Houghton Mifflin Company. All rights reserved. Executed Versus Executory Contracts Executed Versus Executory –An executed contract is one where both sides have completed their performances. –An executory contract is one in which neither party has performed, or one party has performed but the other has not yet performed. This is often referred to as “Executed by one side, executory by the other.”

10. 6 | 10 Copyright © Houghton Mifflin Company. All rights reserved. Contracts Governed by Precedent or Statute Many contracts in the United States today are governed by a uniform set of statutes known as the Uniform Commercial Code. Common Law governs all contracts except where it has been replaced or modified by statutes such as the Uniform Commercial Code.