PowerPoint Slides to accompany
The Legal Environment of Business
and Online Commerce 5E,
by Henry R. Cheeseman
Chapter 11
Formation of Traditional
And Online Contracts
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1
What Is a Contract?

A contract is an
agreement that is
enforceable by a
court of law or
equity.
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2
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
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Sources of Contract Law

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Common law of
contracts
Uniform Commercial
Code (UCC)
Restatement of the
Law of Contracts
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Classifications of Contracts
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Bilateral and unilateral contracts
Express and implied-in-fact contracts
Quasi-contract (implied-in-law)
Formal and informal contracts
Valid, void, voidable, and
unenforceable contracts
Executed and executory contracts
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Bilateral and Unilateral Contracts
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Bilateral
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Offer is accepted by a promise
Unilateral
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Offer can only be accepted by performance of
an act by the offeree
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Express or Implied-in-Fact
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Express contract
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Terms are stated, either written or oral
Implied-in-fact
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Plaintiff provided goods or services
Plaintiff expected to be paid
Defendant had the opportunity to reject the
goods or services and did not
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Quasi-Contract (Implied-in-Law)

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Equitable doctrine to prevent unjust
enrichment
Elements of quasi-contract

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Plaintiff conferred a benefit on the defendant.
It would be unjust not to require the
defendant to pay for the benefit received.
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Formal and Informal Contracts

Formal contracts require a special form or
method of creation.
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Negotiable instruments
Letters of credit
Recognizances
Contracts under seal
Informal contracts include all other contracts
that do not qualify as formal contracts.
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Valid, Void, Voidable

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Valid – meets all the required elements of
an enforceable contract
Void – has no legal effect
Voidable – at least one party has the
option to avoid enforcement
Unenforceable – there is a legal defense to
enforcement of the contract
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Executed and Executory Contracts


Executed – contract has been fully
performed
Executory – contract has not been fully
performed by at least one party
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Elements of an Enforceable Contract
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Agreement
Consideration
Contractual
capacity
Lawful object
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Agreement

Agreement
The manifestation by two or more
persons of the substance of a contract
 Requires an offer and an acceptance

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Parties to an Agreement

Offeror


Person who makes an offer
Offeree

Person to whom an offer has been made
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Requirements of an Offer
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The offeror must objectively intend to be
bound by the offer.
The terms of the offer must be definite or
reasonably certain.
The offer must be communicated to the
offeree.
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Objective Intent

The intent to contract is judged by
the reasonable person standard and
not by the subjective intent of the
parties.
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Auctions
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Auction with reserve
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Is considered an invitation to make an offer
The seller has the right to withdraw the goods
from sale.
Auction without reserve

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The seller is considered an offeror.
The seller must accept the highest bid.
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Termination of an Offer
By action of the parties:
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Revocation of the offer by the offeror
Rejection of the offer by the offeree
Counteroffer by the offeree
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Termination of the Offer
By operation of law:
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Destruction of the subject matter
Death or incompetence of the offeror or
the offeree
Supervening illegality
Lapse of time
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Acceptance

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The offeree’s acceptance
must be unequivocal.
The terms of the
acceptance must match
the terms of the offer.

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Mirror image rule
Acceptance is effective
when sent.

Mailbox rule
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Elements of Consideration
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Something of legal value must be given.
There must be a bargained-for exchange.
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Gift promises (gratuitous promises) are
unenforceable because they lack
consideration.
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Other Promises Lacking Consideration
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Illegal consideration
Illusory promises
Moral obligation
Preexisting duty
Past consideration
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Persons Who May Lack the
Capacity to Contract

Minors
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Persons who have
not reached the age
of majority
Mentally
incompetent persons
Intoxicated persons
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Minors

Infancy doctrine

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Allows minors to disaffirm (cancel) most
contracts they have entered into with adults
Parties’ duties at disaffirmance

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Minor has the duty to return the property he
or she received in the condition it is in at the
time of disaffirmance.
Competent party has the duty to return all
the consideration received from the minor.
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Contract Issues With Minors

Ratification

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If a contract is not disaffirmed within a
reasonable time after reaching majority,
it is considered ratified.
Necessaries of life

A minor may not disaffirm contracts for
necessaries of life.
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Mentally Incompetent Persons

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If a person is adjudged insane, the
contract is void; neither party can enforce
the contract.
If the person is insane, but not adjudged
insane, the contract is voidable by the
insane person; the competent party cannot
void the contract.
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Intoxicated Persons

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Most contracts entered
into by intoxicated
persons are voidable by
that person.
A person who disaffirms a
contract based on
intoxication generally
must return the other
party to status quo.
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Illegality
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Contracts having an illegal object are
illegal contracts.
Illegal contracts are void; neither
party may enforce.
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Illegality
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Contracts contrary
to statutes
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Gambling statutes
Usury laws
Sabbath laws or
blue laws
Licensing statutes
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Illegality
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Contracts Contrary to Public Policy
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Immoral contracts
Contracts in restraint of trade
Certain covenants not to compete
Some exculpatory clauses
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Covenant Not to Compete
A noncompete agreement related to an
employment contract or sale of a
business is legal if it is reasonable in 3
areas:

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The line of business protected
The geographical area protected
The duration of the restriction
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Exculpatory Clauses

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A contract provision that relieves a party of
tort liability.
An exculpatory clause is not effective if:
 It is against the public interest.
 It is the result of superior bargaining
power.
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