Business Law

Chapter 8 Introduction to Contracts

Objectives
Define the objective theory of contracts List the basic requirements of a contract Contrast express and implied contracts

Objectives Summarize the difference between executed and executory contracts State the differences among valid, void, voidable, and unenforceable

Contracts
Promise a declaration that something either will or will not happen in the future Moral vs. legal obligation Promisor the person making the promise Promisee the person to whom the promise is made

Contracts
An agreement that can be enforced in a court Two or more parties Agree to perform or refrain from performing some act now or in the future

Contracts
Each party has a legal duty to the other and also the right to seek a remedy for the breach of the promise or duty Element of intent is of prime importance

Objective Theory of Contracts

The view that contracting parties shall only be bound by terms that can objectively be inferred from promises made.
What the party said How the party acted or appeared The circumstances surrounding the transaction

Basic Requirements
Agreement offer and acceptance Consideration value received or promised Contractual capacity qualify as competent parties Legality Genuineness of assent Form some contracts must be in writing to be enforceable

Classifications of Contracts
Two parties
Offeror person who makes an offer Offeree person to whom an offer is made

Bilateral offeree must only promise to perform, promise for a promise. Unilateral offeree can only accept the offer by performing an act

Unilateral Contracts
Offers are normally revocable until accepted Problem if offeror attempts to revoke the offer after performance has begun Offer becomes irrevocable after performance has begun

Express vs. Implied

Express contract in which the terms are fully and explicitly stated in words, oral or written Implied-in-fact contract formed in whole or in part from the conduct of the parties

Implied-in-Fact
Party furnished some goods or services Party furnishing goods or services expected to be paid, and the party to whom the goods or services were provided knew, or should have known, that payment was expected Party to whom goods or services were provided had a chance to reject them and did not

Quasi-Contracts
Contracts Implied in Law Fictional contracts implied by courts and imposed on parties in the interest of fairness and justice Imposed to avoid the unjust enrichment of one party at the expense of another Sometimes the party obtaining the unjust enrichment is not liable

Formal vs. Informal

Formal a contract that by law requires for its validity a specific form
Contracts under seal Recognizances Negotiable instruments Letters of credit

Informal a contract that does not require a specified form to be valid

Executed vs. Executory

Executed fully performed on both sides Executory has not been fully performed on either side, or fully performed on one side and not the other

Valid Contract
A properly constituted contract having legal strength or force Offer and acceptance, consideration, legal purpose, and legal capacity

Void Contract No contract at all No legal force or binding effect

Voidable Contract
A valid contract in which one or both of the parties has the option of avoiding the legal obligations arising under the contract. Avoid any duty to perform or Ratify (make valid) the contract

Unenforceable Contract
One that cannot be enforced because of certain legal defenses against it Not enforceable because a party failed to satisfy a legal requirement
Certain contracts must be in writing