Essentials of Business Law -- 4th Edition
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Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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“The whole duty of government is to
prevent crime and to preserve
contracts.”
Lord Melbourne,
British Prime Minister
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Contracts exist to make business
matters more predictable.
 Judicial Activism vs. Judicial Restraint
• Judicial restraint makes the law less
flexible but more predictable.
• Judicial activism makes the law more
flexible but less predictable.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Agreement
• One party must make a valid offer, and the
other party must accept it
 Consideration
• There has to be bargaining that leads to an
exchange between the parties.
 Legality
• The contract must be for a lawful purpose.
 Capacity
• The parties must be adults of sound mind.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
9





Consent – both sides must agree to contract.
Written form – some contracts must be written
to be enforceable.
Third party interests – the effect of the
contract on third parties must be considered.
Performance and discharge – when one party
fulfills his obligation, the duty is discharged.
Remedies – a court will award money or relief
to an injured party if a contract is broken.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
9
 Definition
• A promise that the law will enforce.
 Development of Contract Law
• Common law once required all contracts to
be in writing, with a seal affixed.
• Later, some payment was required before a
contract could be enforced.
• Mutual promises became enforceable in the
1600’s.
• By the 1900’s, courts began to consider the
fairness of contracts before enforcing them.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Bilateral
vs. Unilateral
Express
vs. Implied
Executory
Valid
vs.
Unenforceable
vs. Voidable
vs. Executed
vs.
Void
Essentials of Business Law -- 4th Edition
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9

Bilateral and Unilateral Contracts
• Bilateral: both parties make a promise.
• Unilateral: one party makes a promise that the other
party can accept only by doing something.

Express and Implied Contracts
• Express: the two parties explicitly state all important
terms of their agreement.
• Implied: the words and conduct indicate that the
parties intended an agreement.

Executory and Executed Contracts
• Executory: one or more parties has not fulfilled its
obligations.
• Executed: all parties have fulfilled their obligations.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Valid, Unenforceable, Voidable, and
Void Agreements
• Valid: satisfies the law’s requirements.
• Unenforceable: when the parties intend to
form a valid bargain but some rule of law
prevents enforcement.
• Voidable: when the law permits one party to
terminate the agreement.
• Void: one that neither party can enforce,
usually because the purpose is illegal or
one of the parties had no legal authority.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Sometimes, a court needs to provide a
remedy for an injury, even if there was no
contract.
 The two remedies created by judicial
activism in these situations are promissory
estoppel and quasi-contract.
• In promissory estoppel cases, the defendant
made a promise that the plaintiff relied on.
• In quasi-contract cases, the defendant did not
make any promise, but did receive a benefit from
the plaintiff.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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 Even when there is no contract, a
plaintiff may use promissory estoppel to
enforce the defendant’s promise if he
can show that:
• The defendant made a promise knowing
that the plaintiff would likely rely on it.
• The plaintiff did rely on the promise; and
• The only way to avoid injustice is to enforce
the promise.
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Even when there is no contract, a court
may use quasi-contract to compensate
a plaintiff who can show that:
• He gave some benefit to the defendant.
• He reasonably expected to be paid for the
benefit and the defendant knew this; and
• The defendant would be unjustly enriched if
she did not pay.
 The damages awarded are called
quantum meruit, meaning that the
plaintiff gets “as much as he deserved.”
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 Common Law
 Uniform Commercial Code
• UCC Article 2 governs the sale of goods.
“Goods” means anything moveable, except
for money, securities, and certain legal
rights.
• In a mixed contract, Article 2 governs only if
the primary purpose was the sale of goods.
 Restatement (Second) of Contracts
Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Essentials of Business Law -- 4th Edition
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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