P A R T
3
Contracts
Introduction to Contracts
The Agreement: Offer
The Agreement: Acceptance
Consideration
Reality of Consent
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
P A R T
3
Contracts
Capacity to Contract
Illegality
Writing
Rights of Third Parties
Performance & Remedies
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
C H A P T E R
9
Introduction to Contracts
“Contracts are agreements made
up of big words and little type.”
Sam Ewing, quoted in Saturday
Evening Post, May 1993
Learning Objectives
 Nature
of contracts
 Basic elements of a contract
 Basic contract types
 Non-contract obligations
9-5
Contracts
Not every promise is legally enforceable
 When a set of promises has the status of
contract, a person injured by a breach of that
contract is entitled to call on the government
(courts) to force the breaching party to honor
the contract
 Contract law is ancient law, but has evolved
to reflect social change

9-6
Elements of a Contract
(1) agreement (2) between competent parties
(3) based on genuine assent of the parties
that is (4) supported by consideration, (5)
made for a lawful purpose, and (6) in the
form required by law, if any
 See Figure 1, page 276

9-7
Contract Concepts and Types
Bilateral contracts: two parties make promises
to one another
 Unilateral contracts: one party makes promise
 Valid contract: enforceable agreement
 Voidable contract: agreement otherwise
binding, but circumstances allow one party
to avoid binding nature or enforcement
 Void contract: agreement prohibited by law

9-8
Contract Concepts and Types
Express contract: agreement of parties
manifested by written or oral words
 Implied contract: agreement not shown by
words, but by acts and conduct of parties
 Difference between express & implied
contracts relates to manner of proving the
existence of the contract, not the effect; one
or the other arises

9-9
Sources of Governing Law
Two bodies of law govern contracts: Article
2 of Uniform Commercial Code (UCC) and
the common law of contracts
 UCC is statutory law in every state



9 - 10
Contains nine articles
Article 2 expressly applies to contracts for the
sale of goods [2–102] (numbers in brackets
refer to specific Code sections)
The UCC and Hybrid Contracts

9 - 11
Many contracts involve goods and services
International Contract Law
United Nations Convention on Contracts for
the International Sale of Goods (CISG) is a
body of contract rules that harmonizes
contract principles from many legal systems
 CISG automatically applies to a contract for
sale of goods between commercial parties
from signatory nations to CISG unless the
parties expressly opt out of CISG by contract

9 - 12
Non-Contract Obligations
Courts may enforce an obligation to pay for
certain losses or benefits even in absence of
mutual agreement and exchange of value
 Quasi-contract is an obligation imposed by
law to prevent unjust enrichment of one
party in certain circumstances


9 - 13
Plaintiff recovers reasonable value of benefit
conferred on defendant (reasonable price) or
value of labor (quantum meruit)
Non-Contract Obligations

A court may apply doctrine of promissory
estoppel when one party relies upon another
party’s promise to his or her detriment
(detrimental reliance), but there’s no contract
 Court will force promisor to fulfill
promise or pay compensation
9 - 14
Review
9- 15
Test Your Knowledge

True=A, False = B
 Every promise is legally enforceable
 The main element of a contract is fairness
 In a bilateral contract, two parties make
promises to one another
 The UCC is statutory law in every state
 The UCC applies to the sale of goods and
services
9 - 16
Test Your Knowledge

Multiple Choice
 A void contract refers to an agreement that is:

(a) binding and enforceable agreement

(b) otherwise binding, but due to circumstances
surrounding execution or lack of capacity, may be
rejected at option of one party
(c) without legal effect because prohibited by law


A non-contract obligation does not include:
(a) Quasi-contract theory
 (b) Promissory estoppel
 (c) The CISG doctrine
 (d) Quantum meruit

9 - 17
Though Question

What contracts have you entered into
recently?
9 - 18