Chapter 9
Nature of Traditional and
Online Contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-1
A contract is an
agreement that is
enforceable by a
court of law or
equity.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-2
Introduction
• 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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-3
Introduction (continued)
• Contracts are voluntarily
entered into by parties.
• The terms of the contract
become private law
between the parties.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-4
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-5
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 to enter into a
contract is made.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-6
Parties to a Contract
Offer
Offeror
Offeree
Acceptance
Offeror makes an
offer to the offeree
Offeree has the power
to accept the offer
and create a contract
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-7
To be an enforceable contract, four basic
requirements must be met:
Agreement
Lawful Object
Consideration
Elements
of a
Contract
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
Contractual
Capacity
9-8
Elements of a Contract (continued)
• Agreement
– There must be agreement
between the parties.
– This requires an offer by the
offeror and an acceptance of
the offer by the offeree.
– There must be mutual assent by
the parties.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9-9
Elements of a Contract (continued)
• Consideration
– 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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 10
Elements of a Contract (continued)
• 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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 11
Elements of a Contract (continued)
• Lawful Object
– The object of the contract must
be lawful.
– Contracts to accomplish illegal
objects or contracts that are
against public policy are void.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 12
Defenses to the Enforcement of a
Contract
• 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
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 13
Defenses to the Enforcement of a
Contract (continued)
• 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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 14
Sources of Contract Law
• The Common Law of
Contracts
– Contract law developed
primarily by state courts.
• The Uniform Commercial
Code (UCC)
– Comprehensive statutory
scheme that includes laws that
cover aspects of commercial
transactions.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 15
Sources of Contract Law (continued)
• 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.
– Currently in its second edition.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 16
Classifications of Contracts
Bilateral Contract Unilateral
Contract
• A contract
entered into
• A contract in
by way of
which the
exchange of
offeror’s offer
promises of the
can be
parties.
accepted only
by the
• “A promise for
performance
a promise.”
of an act by
the offeree.
• “A promise for
an act.”
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 17
Classifications of Contracts
(continued)
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 18
Classifications of Contracts
(continued)
Objective Theory of Contracts
• 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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 19
Classifications of Contracts
(continued)
Quasi-Contracts (Implied-inLaw 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.
• Intended to prevent unjust
enrichment and unjust
detriment.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 20
Classifications of Contracts
(continued)
Formal Contracts
• Contracts that
require a
special form or
method of
creation.
– Contracts
Under Seal
– Recognizance
s
– 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.
– Leases
© 2007 Prentice Hall, Business Law, sixth edition, Henry
Cheeseman
– R.Sales
9 - 21
Classifications 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.
Void Contract
• A contract
that has no
legal effect.
• Neither party is
obligated to
perform.
• Neither party
can enforce
the contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 22
Classifications of Contracts
(continued)
Voidable
Unenforceable
Contract
Contract
• Contract
• A contract
where one or
where the
both parties
essential
have the
elements to
option to
create a valid
avoid their
contract are
contractual
not met.
obligations.
• However,
• If a contract is
there is some
avoided, both
legal defense
parties are
to the
released
enforcement
© 2007 Prentice
Hall, Businessfrom
Law, sixth edition, Henry
R. Cheeseman
9 - 23
Classifications of Contracts
(continued)
Executed
Executory
Contract
Contract
• A contract
• A contract
that has been
that has not
fully performed
been fully
on both sides.
performed by
either or both
• A completed
sides.
contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 24
Equity
A doctrine that permits judges to
make decisions based on fairness,
equality, moral rights, and natural
law.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
9 - 25