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BUSINESS LAW TODAY Essentials 8 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus. Contracts: Nature, Classification, Agreement, and Consideration. Chapter 7. Learning Objectives.

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Chapter 7

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BUSINESS LAW TODAYEssentials 8th Ed.Roger LeRoy Miller - Institute for University Studies, Arlington, TexasGaylord A. Jentz - University of Texas at Austin, Emeritus

Contracts: Nature, Classification, Agreement, and Consideration

Chapter 7

learning objectives
Learning Objectives
  • What is a contract? What are the four basic elements of a valid, enforceable contract?
  • What are the various types of contracts?
  • What are the requirements of an offer?
  • How can an offer by accepted?
  • What are the elements of consideration?
  • Function of Contracts:
    • Fundamental to business.
    • Creates rights and duties between parties.
    • Provides stability and predictability.
  • Parties: Promisor (makes the promise) and Promisee (accepts the promise).
  • Definition of a Contract.
    • Agreement that can be enforced in court.
    • Formed by two or more parties.
    • Failure to perform results in breach and damages.
elements of a contract
Elements of a Contract
  • A valid, enforceable contract includes:
    • Agreement.
    • Consideration.
    • Capacity.
    • Legality.
  • Defenses to Enforceability:
    • Genuineness of Assent.
    • Form.
bilateral vs unilateral contracts
Bilateral vs. Unilateral Contracts
  • Bilateral Contracts:
    • Offeror and Offeree exchange promises to each other.
    • A contract is formed when Offeree promises to perform.
bilateral vs unilateral contracts7
Bilateral vs. Unilateral Contracts
  • Unilateral Contracts:
    • Offeror wants performance in exchange for his promise.
    • CASE 7.1Ardito v. City of Providence (2003).
    • Contract is formed when Offeree performs.
    • Contests and lotteries are examples.
    • Revocation of Offer: modern view is that offer is irrevocable once the Offeree substantially performs.
formal vs informal contracts
Formal vs. Informal Contracts
  • Formal: require special form or method to be enforceable, e.g., under seal.
  • Informal: all other contracts.
express vs implied contracts
Express vs. Implied Contracts
  • Express: terms of contract are set forth either in writing or orally.
  • Implied-in-Fact: based on conduct.
    • Plaintiff furnished service or product.
    • Plaintiff expects to be compensated.
    • Defendant had a chance to reject and did not.
contract performance
Contract Performance
  • Executed vs. Executory Contracts.
    • Executed: fully performed by both sides.
    • Executory: at least one of the parties has not performed.
contract enforceability
Contract Enforceability
  • Valid Contract.
    • Four Elements: Agreement, Consideration, Legal Purposes, Parties have legal capacity.
  • Voidable Contract.
    • Valid contract that is legally defective and can be avoided (rescinded) by one of the parties.
  • Void Contract.
    • No contract at all.
quasi contracts
Quasi Contracts
  • Implied-in-Law Contracts (Quasi Contract).
    • Fictional, created by court to avoid unjust enrichment.
    • Limitations on quasi-contractual recovery.
    • Cannot be used when an actual contract exists.
requirements of the offer
Requirements of the Offer
  • An agreement consists of a valid offer and acceptance.
  • An offer is the Offeror’s promise to perform.
requirements of the offer14
Requirements of the Offer
  • An offer requires serious, objection intention.
    • CASE 7.2 Lucy v. Zehmer (1954).
    • Opinions are not offers.
    • Good Intentions are not offers.
    • Preliminary Negotiations are not offers.
    • Agreements to Agree are not offers.
  • Reasonably definite terms.
  • Communication to Offeree.
termination of the offer
Termination of the Offer
  • Termination of the Offer.
    • By Act of the Parties.
    • Revocation by the Offeror (unless irrevocable).
    • Rejection by the Offeree (or counteroffer).
    • Operation of Law: lapse of time, destruction, death or incompetence, supervening illegality.
  • Voluntary act by Offeree that shows assent to terms of original offer.
  • Mirror Image Rule.
    • Offeree must unequivocally accept offer.
    • Additional terms may be considered a counteroffer.
  • Acceptance by Silence.
  • Authorized Means of Communication is either express or implied by form of offer (e.g., U.S. mail, fax, email).
mailbox rule
“Mailbox Rule”
  • “Offeree accepts offer when the acceptance is dispatched to Offeror in the form it was received, unless offer requires a different method (e.g., Fed-Ex, or receipt by Offeror).
  • Exceptions:
    • Acceptance is not properly dispatched.
    • Offer stipulates not accepted until received.
    • Offeree rejects then accepts. First communication received determines whether contract is formed.
  • Consideration is value given in return for a promise.
  • Elements:
    • Something of legally sufficient value given in exchange for a promise and
    • That is bargained for between the parties.
contracts that lack consideration
Contracts That Lack Consideration
  • Pre-Existing Duty.
  • Unforeseen Difficulties.
  • Rescission and New Contract.
  • Past Consideration.
  • Illusory Promises.
settlement of claims
Settlement of Claims
  • Accord and Satisfaction.
  • Release.
    • CASE 7.3BP Products North America, Inc. v. Oakridge at Winegard, Inc. (2007).
  • Covenant Not to Sue.
promissory estoppel
Promissory Estoppel
  • Promissory Estoppel (“detrimental reliance”) doctrine applies when a person relies on the promise of another to her legal detriment.
  • Promisor is “estopped” (precluded) from revoking the promise. There must be:
    • Clear and definite promise with substantial reliance.
    • Justice is served by enforcement of the promise.