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Food for Thought of the Day
“Human beings, by changing the inner
attitudes of their minds, can change the
outer aspects of their lives.”
-William James
© 2005 West Legal Studies in Business
A Division of Thomson Learning
1
Welcome to
Introduction to Business BUS 002
Agenda
TOPIC:
Contracts: Nature, Classification, Agreement, and Consideration
• Check-Ins: Questions, Comments, Reflections, AhHa Moments
• FYI Article –
– “They Call This Intellectual Property?” source: Forbes
• Contracts
– Four Requirements
– Types of Contracts
• Presentation: Real Estate Contracts by Demetria Summers
• Reflection
• Emancipate
© 2005 West Legal Studies in Business
A Division of Thomson Learning
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Learning Objectives
• What is a contract? What are the four
basic elements necessary to the formation
of a valid, contract?
• What are the various types of contracts?
• What are the requirements of an offer?
• How can an offer be accepted?
• What are the elements of consideration?
© 2005 West Legal Studies in Business
A Division of Thomson Learning
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Terms
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Contract
Promise
Promisor
Promisee
Offer
Offeror
Offeree
Agreement
Acceptance
Breach
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Contracts
• Function of Contracts
– Creates rights and duties between parties.
– Ensures compliance with a promise
– Provides stability and predictability for buyers
and sellers in the marketplace.
• Parties:
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Promisor (makes the promise)
Promisee (accepts the promise).
the Offeror (makes the offer)
the Offeree (accepts the offer).
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Definition of a Contract
• Definition of a Contract
– An agreement between two or more competent
parties to perform or to refrain from
performing some act now or in the future.
– Agreement that can be enforced in court.
– Failure to perform results in breach and
damages.
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Requirements of a Contract
• A valid, enforceable contract includes:
– Agreement. A legal offer and an acceptance
– Consideration. Something of value given or promised
to convince a party to agree to the deal.
– Capacity. Both parties must be legally competent (i.e.
intoxication, mentally competent)
– Legality. Contract’s purpose must be to accomplish
some goal that is legal and not against public policy.
(i.e. Baby for Sale p. 245)
• Defenses to formation and enforceability of a
contract include:
– Lacking because of mistake, fraudulent
misrepresentation, undue influence, or duress
– Agreement not in the form the law requires (e.g.,
written, under seal).
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Types of Contracts
• Bilateral Contracts.
– A promise for a promise (e.g., X promises to
deliver a car to Y, and Y promises to pay X an
agreed price).
• Unilateral Contracts.
– A promise for a act (e.g., X offers Y $25 to mow
X’s yard).
– Revocation of Offer: the offer is irrevocable once
the Offeree substantially performs the act.
– Ardito v. City of Providence (2003) p. 205.
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Types of Contracts
• Formal vs. Informal Contracts
– Formal: A contract that requires a special form or
method of formation (creation) in order to be
enforceable. e.g, recognizance, invoice
– Informal: A contract that does not require a
specified form or method of formation in order to
be valid.
• Executed vs. Executory Contracts
– Executed: fully performed by both sides.
– Executory: at least one of the parties has not
performed.
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Types of 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.
– Implied-in-Law (Quasi Contract).
• Fictional, created by court to avoid unjust
enrichment at the expense of others.
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Contract Enforceability
• Valid Contract.
– Four Elements necessary for contract formation:
• 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. (e.g., a
contract entered into under duress or under false
pretenses)
• Void Contract.
– No contract at all. (e.g., a contract entered into for an
illegal purpose);
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Agreement: Offer
• Agreement = Offer and Acceptance.
• An offer is the Offeror’s promise to perform.
• An offer requires Serious objective (specific
target) intention.
• An offer requires
– Reasonably definite terms.
– Communication to Offeree.
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Offer
• Termination of Offer.
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Time lapses, offer expires
By Act of the Parties.
Destruction of Subject Matter
Revocation by Offeror (unless irrevocable).
Rejection by Offeree (or counteroffer).
Operation of Law (destruction, death).
• Not an offer are:
• Opinions are not offers.
• Good Intentions are not offers.
• Preliminary Negotiations are not offers.
• Agreements to agree on future terms of a
contract are not offers.
– Lucy v. Zehmer (1954) p. 211.
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Agreement: Acceptance
• Voluntary act by Offeree that shows
agreement to terms of original offer.
• Unequivocal (clear – no other meaning)
Acceptance: “Mirror Image” Rule.
– Offeree must unequivocally (clearly) accept offer.
– Additional terms may be considered a counteroffer.
• Acceptance by Silence.
– Acts consistent with acceptance (e.g. Accepted
good or services linked to offer)
– Prior Dealings: must accept or reject offer or be
bound by silence.
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Agreement: Acceptance
• Communication of Acceptance.
– Authorized Means of Communication is either
express or implied by form of offer (e.g., U.S.
mail, fax, email).
– “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).
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Consideration
• Something of value given or promised to
convince a party to agree to the deal.
• Elements are:
– Something of legally sufficient value given in
exchange for a promise and
– That is bargained for between the parties.
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Consideration
• Contracts that Lack Consideration:
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Pre-Existing Duty.
Unforeseen Difficulties.
Past Consideration. Acts already taken place
Illusory Promises. Uncertain (unclear) terms
• Settlement of Claims:
– Accord and Satisfaction. (pay small amount of
what’s owed to settle ex. Credit card debt)
– Release. Party forfeits right to a legal claim
– Covenant Not to Sue. Another agreement in
exchange not to sue.
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Real Estate Contract Presentation
by Demetria Summers
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Promissory Estoppel
(Detrimental Reliance)
• Promissory Estoppel. When a person
relies on the promise of another even if it was
insufficient to form the basis of a valid, legally
binding contract.
• 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.
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Breach of Contract
• The failure, without legal excuse, of a promisor to
perform the obligations of a contract.
• Damages for Breach:
– Compensatory (to cover direct losses and costs)
– Consequential (to cover indirect and foreseeable
looses)
– Punitive (to punish and deter wrongdoing)
– Nominal (to recognize wrongdoing when no monetary
loss is shown)
• See Exhibit 9-4 p. 291
– Rescission – Return non-breaching party to original form
– Restitution – Return all goods, property, money
– Reformation – Allows contract to be re-written to reflect
the parties’ intentions
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A Division of Thomson Learning
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What do you think?
View the Video
“Offer & Acceptance” Did I just sale my car?
In groups of 3-4, answer the following questions?
•
Has a contract been formed? Has there been a valid offer
and acceptance?
•
Has the contract been formed yet?
•
Oscar and Maria have now begun negotiations on Maria's
truck. What mistakes did Vinny make in the video that
Oscar and Maria should avoid in their negotiations?
© 2005 West Legal Studies in Business
A Division of Thomson Learning
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Reflection
• How might today’s content impact my
practice in business?
• What implications might today’s content
have on the local, state, national, and
global communities?
• What have I learned about law and
business that will influence my practice?
© 2005 West Legal Studies in Business
A Division of Thomson Learning
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