CHAPTER 9
INTRODUCTION TO CONTRACT
LAW AND CONTRACT THEORY
DAVIDSON, KNOWLES & FORSYTHE
Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE IMPORTANCE OF CONTRACT LAW

Law of contracts affects all aspects of daily
life.
 Commercial Law Contracts: having to do
with commerce.
 Common Law Contracts: derived from the
judgments and decrees of courts.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE IMPORTANCE OF CONTRACT LAW
 Definition
of a Contract:
– Legally binding.
– Legally enforceable promise or set of
promises.
– Between two or more competent parties.
– Law recognizes a duty.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ELEMENTS OF A CONTRACT

Founded on an agreement.
– An offer and acceptance on that offer.

Supported by consideration.
– Something bargained for and given in exchange
for a promise.

Made by parties having the capacity to
contract.
– The legal ability to contract.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
4
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
ELEMENTS OF A CONTRACT

Based on the parties’ genuine assent.
– Voluntary involvement as a party to the
contract.

Grounded in a legal undertaking.
– Subject matter must be legal.

Expressed in proper form.
– Written and oral contracts can be binding if
rules are understood and followed.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
5
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
FROM STATUS TO FREEDOM OF
CONTRACT AND BACK AGAIN

Feudal society set social hierarchies.
 Contract law calls for the performance of
mutual duties and obligations.
 Law merchant and contracts were more
important than status.
 Lawmakers lately have restricted freedom
of contracts.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
6
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
CLASSIFICATIONS 0F CONTRACTS

Formal vs. Informal Contracts.
 Unilateral vs. Bilateral Contracts.
 Valid, Voidable, Void, and Unenforceable
Contracts.
 Express vs. Implied Contracts.
 Executory vs.Executed Contracts.
 Quasi Contracts vs. Contracts Implied in
Fact.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
7
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
CLASSIFICATION OF CONTRACTS

Formal Versus Informal Contracts.
– Formal Contracts need a seal.
– Informal Contracts are simple and do not need a
seal.

Unilateral Versus Bilateral Contracts.
– Unilateral Contracts is a promise on one side
only.
– Bilateral Contracts are promises on both sides.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
8
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
CLASSIFICATION OF CONTRACTS

Valid, Voidable, Void, and Unenforceable
Contracts.
– Valid Contract is legally binding and
enforceable.
– Voidable Contract can be affirmed or rejected at
the option of one or more of the contracting
parties.
– Void Contract can never have any legal effect.

Unenforceable Contracts will not be given
effect by a court of law.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
9
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
CLASSIFICATION OF CONTRACTS

Express Versus Implied Contracts.
– Express Contracts the parties set forth their
intentions specifically and definitely in writing
or oral.
– Implied Contracts is inferred from the actions
or conduct of the parties.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
10
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
CLASSIFICATION OF CONTRACTS

Executory vs. Executed Contracts
– Executory Contract is when a promise remains
unfulfilled by one party.
– Executed Contract is when the parties have
fully performed the promise.
 Quasi Contracts versus Contracts Implied in Fact
– Quasi Contracts are implied in law.
– Implied in Fact Contracts hold that sufficient
evidence exists for a court to determine that the
parties were meant to contract with each other.
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A Division of Thomson Learning
11