Types of Contract

Copyright © 2004 by Prentice-Hall. All rights reserved.

PowerPoint Slides to AccompanyPowerPoint Slides to AccompanyBUSINESS LAWBUSINESS LAW

E-Commerce and Digital Law E-Commerce and Digital Law International Law and EthicsInternational Law and Ethics

55thth Edition Editionby Henry R. Cheesemanby Henry R. Cheeseman

Slides developed by

Les Wiletzky

Wiletzky and Associates, Puyallup, WA

Chapter 9Nature of Traditional and E-Commerce Contracts

Chapter 9Nature of Traditional and E-Commerce Contracts

Copyright © 2004 by Prentice-Hall. All rights reserved. 9 - 2

A A contractcontract is an is an

agreement that is agreement that is

enforceable by a enforceable by a

court of law or court of law or

equity.equity.


IntroductionIntroduction

Contracts are the basis of many daily Contracts are the basis of many daily activities.activities.

They provide the means for individuals and They provide the means for individuals and businesses to sell and otherwise transfer businesses to sell and otherwise transfer property, services, and other rights.property, services, and other rights.

Without enforceable contracts, commerce Without enforceable contracts, commerce would collapse.would collapse.


Introduction Introduction (continued)(continued)

Contracts are voluntarily entered into by Contracts are voluntarily entered into by parties.parties.

The terms of the contract become The terms of the contract become private lawprivate law between the parties.between the parties.


Legally Enforceable ContractLegally Enforceable Contract

If one party fails to perform as promised, the If one party fails to perform as promised, the

other party can use the court system to other party can use the court system to

enforce the contract and recover damages or enforce the contract and recover damages or

other property.other property.


Parties to a ContractParties to a Contract

Every contract involves at least two parties.Every contract involves at least two parties.

Offeror –Offeror – the party who makes an offer to the party who makes an offer to enter into a contract.enter into a contract.

Offeree –Offeree – the party to whom an offer to enter the party to whom an offer to enter into a contract is made.into a contract is made.


Parties to a ContractParties to a Contract

OfferorOfferorOfferorOfferor OffereeOffereeOffereeOfferee

OfferOffer

AcceptanceAcceptance

Offeror makes an Offeror makes an offer to the offereeoffer to the offeree

Offeree has the powerOfferee has the powerto accept the offerto accept the offerand create a contractand create a contract


To be an enforceable contract, four basic To be an enforceable contract, four basic requirements must be met:requirements must be met:

Elements Elements of a of a

ContractContract

AgreementAgreement ConsiderationConsideration

Contractual Contractual CapacityCapacityLawful Lawful

ObjectObject


Elements of a Contract Elements of a Contract (continued)(continued)

AgreementAgreement There must be agreement between the There must be agreement between the

parties.parties. This requires an This requires an offeroffer by the offeror and an by the offeror and an

acceptanceacceptance of the offer by the offeree. of the offer by the offeree. There must be mutual assent by the parties.There must be mutual assent by the parties.



ConsiderationConsideration The promise must be supported by a The promise must be supported by a

bargained-for consideration that is legally bargained-for consideration that is legally sufficient.sufficient.

Gift promises and moral obligations are not Gift promises and moral obligations are not considered supported by valid consideration.considered supported by valid consideration.



Contractual CapacityContractual Capacity The parties to a contract must have The parties to a contract must have

contractual capacity.contractual capacity. Certain parties, such as persons adjudged to Certain parties, such as persons adjudged to

be insane, do not have contractual capacity.be insane, do not have contractual capacity.



Lawful ObjectLawful Object The object of the contract must be lawful.The object of the contract must be lawful. Contracts to accomplish illegal objects or Contracts to accomplish illegal objects or

contracts that are against public policy are contracts that are against public policy are void.void.


Defenses to the Enforcement of a Defenses to the Enforcement of a ContractContract Genuineness of AssentGenuineness of Assent

The consent of the parties to create a The consent of the parties to create a contract must be genuine.contract must be genuine.

There is no real consent if the consent is There is no real consent if the consent is obtained by:obtained by:DuressDuressUndue influenceUndue influenceFraudFraud


Defenses to the Enforcement of a Defenses to the Enforcement of a Contract Contract (continued)(continued)

Writing and FormWriting and Form The law requires that certain contracts be in The law requires that certain contracts be in

writing or in a certain form.writing or in a certain form. Failure of these contracts to be in writing or Failure of these contracts to be in writing or

be in proper form may be raised against the be in proper form may be raised against the enforcement of the contract.enforcement of the contract.


Sources of Contract LawSources of Contract Law

The Common Law of ContractsThe Common Law of Contracts Contract law developed primarily by state Contract law developed primarily by state

courts.courts. The Uniform Commercial Code (UCC)The Uniform Commercial Code (UCC)

Comprehensive statutory scheme that Comprehensive statutory scheme that includes laws that cover aspects of includes laws that cover aspects of commercial transactions.commercial transactions.


Sources of Contract Law Sources of Contract Law (continued)(continued)

The Restatement of the Law of ContractsThe Restatement of the Law of Contracts Compilation of model contract law principles Compilation of model contract law principles

drafted by legal scholars.drafted by legal scholars. The Restatement is not law.The Restatement is not law. However, lawyers and judges often refer to it However, lawyers and judges often refer to it

for guidance in contract disputes.for guidance in contract disputes. Currently in its second edition.Currently in its second edition.


Classifications of ContractsClassifications of Contracts

Bilateral ContractBilateral Contract A contract entered into A contract entered into

by way of exchange of by way of exchange of promises of the parties.promises of the parties.

““A promise for a A promise for a promise.”promise.”

Bilateral ContractBilateral Contract A contract entered into A contract entered into

by way of exchange of by way of exchange of promises of the parties.promises of the parties.

““A promise for a A promise for a promise.”promise.”

Unilateral ContractUnilateral Contract A contract in which the A contract in which the

offeror’s offer can be offeror’s offer can be accepted only by the accepted only by the performance of an act performance of an act by the offeree.by the offeree.

““A promise for an act.”A promise for an act.”

Unilateral ContractUnilateral Contract A contract in which the A contract in which the

offeror’s offer can be offeror’s offer can be accepted only by the accepted only by the performance of an act performance of an act by the offeree.by the offeree.

““A promise for an act.”A promise for an act.”


Classifications of ContractsClassifications of Contracts (continued) (continued)

Express ContractExpress Contract An agreement that is An agreement that is

expressed in written or expressed in written or oral words.oral words.

Express ContractExpress Contract An agreement that is An agreement that is

expressed in written or expressed in written or oral words.oral words.

Implied-in-fact ContractImplied-in-fact Contract A contract where A contract where

agreement between agreement between parties has been parties has been inferred from their inferred from their conduct.conduct.

Implied-in-fact ContractImplied-in-fact Contract A contract where A contract where

agreement between agreement between parties has been parties has been inferred from their inferred from their conduct.conduct.



Objective Theory of ContractsObjective Theory of Contracts The intent to enter into an express or The intent to enter into an express or

implied-in-fact contract is judged by the implied-in-fact contract is judged by the reasonable person standardreasonable person standard..

The subjective intent of a party to enter into a The subjective intent of a party to enter into a contract is irrelevant.contract is irrelevant.



Quasi-Contracts (Implied-in-Law Contracts)Quasi-Contracts (Implied-in-Law Contracts) Allows a court to award monetary damages Allows a court to award monetary damages

to a plaintiff for providing work or services to to a plaintiff for providing work or services to a defendant even though no actual contract a defendant even though no actual contract existed between the parties.existed between the parties.

Intended to prevent Intended to prevent unjust enrichmentunjust enrichment and and unjust detrimentunjust detriment..



Formal ContractsFormal Contracts Contracts that require a Contracts that require a

special form or method special form or method of creation.of creation. Contracts Under SealContracts Under Seal RecognizancesRecognizances Negotiable Negotiable

InstrumentsInstruments Letters of CreditLetters of Credit

Formal ContractsFormal Contracts Contracts that require a Contracts that require a

special form or method special form or method of creation.of creation. Contracts Under SealContracts Under Seal RecognizancesRecognizances Negotiable Negotiable

InstrumentsInstruments Letters of CreditLetters of Credit

Informal ContractsInformal Contracts No special form or No special form or

method is required for method is required for their creation.their creation.

Fully enforceable and Fully enforceable and may be sued upon if may be sued upon if breached.breached. LeasesLeases Sales ContractsSales Contracts Service ContractsService Contracts

Informal ContractsInformal Contracts No special form or No special form or

method is required for method is required for their creation.their creation.

Fully enforceable and Fully enforceable and may be sued upon if may be sued upon if breached.breached. LeasesLeases Sales ContractsSales Contracts Service ContractsService Contracts



Valid ContractValid Contract Contract that meets all Contract that meets all

of the essential of the essential elements to establish a elements to establish a contract.contract.

Enforceable by at least Enforceable by at least one of the parties.one of the parties.

Valid ContractValid Contract Contract that meets all Contract that meets all

of the essential of the essential elements to establish a elements to establish a contract.contract.

Enforceable by at least Enforceable by at least one of the parties.one of the parties.

Void ContractVoid Contract A contract that has no A contract that has no

legal effect.legal effect. Neither party is Neither party is

obligated to perform.obligated to perform. Neither party can Neither party can

enforce the contract.enforce the contract.

Void ContractVoid Contract A contract that has no A contract that has no

legal effect.legal effect. Neither party is Neither party is

obligated to perform.obligated to perform. Neither party can Neither party can

enforce the contract.enforce the contract.



Voidable ContractVoidable Contract Contract where one or Contract where one or

both parties have the both parties have the option to avoid their option to avoid their contractual obligations.contractual obligations.

If a contract is avoided, If a contract is avoided, both parties are both parties are released from their released from their contractual obligations.contractual obligations.

Voidable ContractVoidable Contract Contract where one or Contract where one or

both parties have the both parties have the option to avoid their option to avoid their contractual obligations.contractual obligations.

If a contract is avoided, If a contract is avoided, both parties are both parties are released from their released from their contractual obligations.contractual obligations.

Unenforceable ContractUnenforceable Contract A contract where the A contract where the

essential elements to essential elements to create a valid contract create a valid contract are not met.are not met.

However, there is However, there is some legal defense to some legal defense to the enforcement of the the enforcement of the contract.contract.

Unenforceable ContractUnenforceable Contract A contract where the A contract where the

essential elements to essential elements to create a valid contract create a valid contract are not met.are not met.

However, there is However, there is some legal defense to some legal defense to the enforcement of the the enforcement of the contract.contract.



Executed ContractExecuted Contract A contract that has A contract that has

been fully performed been fully performed on both sides.on both sides.

A completed contract.A completed contract.

Executed ContractExecuted Contract A contract that has A contract that has

been fully performed been fully performed on both sides.on both sides.

A completed contract.A completed contract.

Executory ContractExecutory Contract A contract that has not A contract that has not

been fully performed by been fully performed by either or both sides.either or both sides.

Executory ContractExecutory Contract A contract that has not A contract that has not

been fully performed by been fully performed by either or both sides.either or both sides.


EquityEquity

A doctrine that permits judges to A doctrine that permits judges to make decisions based on fairness, make decisions based on fairness, equality, moral rights, and natural equality, moral rights, and natural law.law.