Chapter 9

According to the Restatement (Second) of Contracts “A promise or a 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”

Legally enforceable contract: A contract in which if one party fails to perform as promised: The other party can use the court system to enforce the

contract and recover damages or another remedy

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Genuineness of assent The consent of the parties to create a contract must be

genuine Writing and form

The law requires that certain contracts be in writing or in a certain form

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Bilateral contract: A contract entered into by way of exchange of promises of the parties “A promise for a promise”

Unilateral contract: A contract in which the offeror’s offer can be accepted only by the performance of an act by the offeree A “promise for an act”

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Formal contract: A contract that requires a special form or method of creation Most common forms of formal contracts are▪ Negotiable instrument

▪ Letter of credit

▪ Recognizance

▪ Contract under seal Informal contract: A contract that is not formal

Valid informal contracts are fully enforceable and may be sued upon if breached

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Executory contract: A contract that has not been fully performed by either or both sides

Executed contract: A contract that has been fully performed by both sides A completed contract

Express contract: An agreement that is expressed in written or oral words

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Implied-in-fact contract: A contract in which agreement between parties has been inferred from their conduct

Quasi-contract (implied-in-law contract): An equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed The doctrine is intended to prevent unjust enrichment and

unjust detriment

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Classification Description

Valid contract A contract that meets all the essential elements of establishing a contract.

Void contract No contract exists.

Voidable contract A contract in which at least one party has the option of voiding the contract

Unenforceable contract

A contract that cannot be enforced because of a legal defense

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Classification Description

Executed contract A contract that is fully performed on both

Executory contract A contract that is not fully performed by one or both parties

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The manifestation by two or more persons of the substance of a contract

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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The intent to enter into a contract is determined using the objective theory of contracts Objective theory of contracts: A theory that says the

intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties

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The seller offers goods for sale through an auctioneer Auction with reserve

The seller retains the right to refuse the highest bid and withdraw the goods from sale

Unless expressly stated otherwise, an auction is an auction with reserve

Auction without reserve An auction in which the seller expressly gives up his or her

right to withdraw the goods from sale The seller must accept the highest bid

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Revocation of an offer: Withdrawal of an offer by the offeror that terminates the offer

Rejection of an offer: Express words or conduct by the offeree that rejects an offer Rejection terminates the offer

Counteroffer: A response by an offeree that contains terms and conditions different from or in addition to those of the offer A counteroffer terminates the previous offer

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Lapse of time A stated time period after which an offer terminates If no time is stated, an offer terminates after a reasonable

time Termination by operation of law occurs if

The subject matter of the offer is destroyed through no fault of either party

Either the offeror or the offeree dies or becomes incompetent

The object of the offer is made illegal by law

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An offeree’s acceptance must be unequivocal Mirror image rule: A rule which states that for an

acceptance to exist, the offeree must accept the terms as stated in the offer

Acceptance-upon-dispatch rule (mailbox rule) A rule which states that an acceptance is effective when it is

dispatched, even if it is lost in transmission

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Something of legal value given in exchange for a promise

Legal value: Support for a contract when either The promisee suffers a legal detriment or The promisor receives a legal benefit

Bargained-for exchange: Exchange that parties engage in that leads to an enforceable contract

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A promise that is unenforceable because it lacks consideration A completed gift promise cannot be rescinded for lack of

consideration

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Contract Description

Illegal consideration

A promise to refrain from doing an illegal act. Such a promise does not support a contract.

Illusory promise A contract into which both parties enter but one or both of the parties can choose not to perform their contractual obligations. Thus, the contract lacks consideration.

Preexisting duty Something a person is already under an obligation to do. A promise lacks consideration if a person promises to perform a preexisting duty.

Past consideration

A prior act or performance. Past consideration (e.g., prior acts) will not support a new contract. New consideration must be given.

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A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults The minor must be restored to the same position he or she

was in before the minor entered into the contract Minors are obligated to pay for the necessaries of life

that they contract for

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Adjudged insane: Declared legally insane by a proper court or administrative agency A contract entered into by a person adjudged insane is void

Insane but not adjudged insane: Being insane but not having been adjudged insane by a court or an administrative agency A contract entered into by such person is generally voidable Some states hold that such a contract is void

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A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence A contract is voidable only if the person was so intoxicated

when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction

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Contracts contrary to statutes Contracts to perform activities that are prohibited by statute

are illegal contracts Illegal contract: A contract that has an illegal object▪ Such contracts are void

Contract contrary to public policy: A contract that has a negative impact on society or that interferes with the public’s safety and welfare

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A contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence Also called release of liability clause

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A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust

Elements of an unconscionable contract The parties possessed severely unequal bargaining power The dominant party unreasonably used its unequal

bargaining power to obtain oppressive or manifestly unfair contract terms

The adhering party had no reasonable alternative

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The sale and lease of goods and services and other property and the licensing of software over the Internet or by other electronic means

Electronic contract: A contract that is formed electronically

Electronic license: An electronic contract that licenses the use of computer and software information

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A model act that Establishes uniform legal rules for the formation and

enforcement of electronic contracts and licenses Addresses most of the legal issues that are encountered

while conducting e-commerce over the Internet

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