Chapter 11 Formation of Traditional and Online Contracts

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Chapter 11Formation of Traditional and Online
Contracts
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Contract

• A promise or set of promises for the breach of
  which the law gives a remedy or the performance
  of which the law in some way recognizes a duty
• An agreement that is enforceable by a court of
  law or equity.

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Sources of Contract Law

• Common law of contracts
• Uniform Commercial Code (UCC)
• Restatement of the Law of Contracts

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Classifications of Contract

• 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

• Bilateral
• Offer is accepted by a promise
• Unilateral
• Offer can only be accepted by performance of an
  act by the offeree

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Express or Implied-in-Fact

• Express contract
• Terms are stated, either written or oral
• Implied-in-fact
• 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)

• Equitable doctrine to prevent unjust enrichment
• Elements of quasi-contract
• 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.
• 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, and Unenforceable

• 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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Do we have a deal?

• Four basic requirements must be met
• Agreement
• Consideration
• Contractual Capacity
• Legality/Lawful Object

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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 a Contract

• Offeror makes the offer
• Offeree whom the offer is made to

Offer
Offeror
Offeree
Acceptance
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Requirements of an Offer

• 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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Special Offer Situations

• Auctions
• Auction with reserve
• Auction without reserve
• Advertisements
• General advertisement
• Specific advertisement
• Rewards

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Termination of an Offer

• By action of the parties
• Revocation of the offer by the offeror
• Rejection of the offer by the offeree
• Counteroffer by the offeree

• By operation of law
• Destruction of the subject matter
• Death or incompetence of the offeror or the
  offeree
• Supervening illegality
• Lapse of time

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Acceptance

• The offerees acceptance must be unequivocal.
• The terms of the acceptance must match the terms
  of the offer.
• Mirror image rule
• Acceptance is effective when sent.
• Mailbox rule

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Elements of Consideration

• Something of legal value must be given.
• There must be a bargained-for exchange.
• Gift promises (gratuitous promises) are
  unenforceable because they lack consideration.

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Other Promises Lacking Consideration

• Illegal consideration
• Illusory promises
• Moral obligation
• Preexisting duty
• Past consideration

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Who May Lack theCapacity to Contract?

• Minors
• Mentally incompetent persons
• Intoxicated persons

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Minors

• Infancy doctrine
• Allows minors to disaffirm most contracts they
  have entered into with adults
• Duties at disaffirmance
• Minor must return the property received in the
  condition it is in at the time of disaffirmance.
• Competent party must return all the consideration
  received from the minor.

• Ratification
• 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

• 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

• 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

• Contracts having an illegal object are illegal
  contracts.
• Illegal contracts are void neither party may
  enforce.

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Illegality

• Contracts contrary to statutes
• Gambling statutes
• Usury laws
• Sabbath laws or blue laws
• Licensing statutes

• Contracts Contrary to Public Policy
• 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
• The line of business protected
• The geographical area protected
• The duration of the restriction

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Exculpatory Clauses

• 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.