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Business Law
Principles
and Practices 8e
Arnold J. Goldman William D. Sigismond
Chapter 6 Contract Law: A Beginning
Part II Objectives
1. Recognize the requirements of a valid contract.
2. Classify contracts as valid, void, voidable, or unenforceable.
3. Explain the requirements of a valid offer and acceptance, the first important elements in a binding contract.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Part II Objectives
4. Summarize the various forms of consideration, when consideration is necessary to form a binding contract, and the exceptions to the rule requiring the presence of consideration in a contract.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Part II Objectives
5. Determine what makes parties competent to contract and the effects of various incapacities.
6. Distinguish between a legal and an illegal agreement and the consequences of entering into an illegal agreement.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Part II Objectives
8. Point out the circumstances in which parties to a contract may transfer their rights and obligations after the contract has been made.
9. Summarize ways in which contracts may be ended and the various remedies available to the parties for breach of the contract.
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Part II Objectives
10. Be able to apply the online rules that have evolved from traditional contract situations.
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What a Contract Is
Contract: legally binding agreement between two or more competent persons.
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Elements of a Valid Contract
Agreement
Consideration
Capacity
Legality
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Legality
Legality: the point that a contract must not be against the law.
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Breach
Breach: failure to perform the obligations required by a contract.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Contract Terminology
All contracts may be classified in the following ways:
Bilateral or unilateral.
Valid.
Void, voidable, or unenforceable.
Formal or informal.
Express or implied.
Executory or executed.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Bilateral and Unilateral Formation
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Bilateral Contract
Bilateral contract: contract in which one party makes a promise in return for a promise made by another party.
Most common type of contract.
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Unilateral Contract
Unilateral contract: contract in which one party makes a promise in return for the performance of an act by another party.
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Valid and Void Contracts
Contracts may be classified in terms of their enforceability.
Valid contract: contract containing all the essential elements.
Void contract: contract that has no legal effect and cannot be enforced.
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Voidable Contracts
Voidable contract: contract enforceable against all parties until the party legally entitled to avoid the contract decides to do so.
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Unenforceable Contract
Unenforceable contract: contract that is legal but fails to meet some requirement of the law.
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Formal and Informal Contracts
Formal contract: written contract prepared with certain formalities, including a seal.
Informal contract: contract prepared without formalities.
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Informal Contract
Informal Written Contract:
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Express and Implied Contracts
Express contract: contract in which the agreement is specifically stated.
Implied contract: contract formed from actions of the parties.
In some instances, a contract may be partially express and partially implied.
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Quasi Contract
Quasi contract: contract implied in law to prevent one from benefiting at another’s expense.
In certain cases, the courts create a fictional contract, called a quasi contract, despite the wishes and intentions of the parties so as to promote justice.
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Executory and Executed Contracts
Executory contracts: contract that has not been fully performed by one or all parties.
Executed contracts: contract that has been completely carried out.
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Contracts Governed by Precedent or Statute
Precedents vary from state to state.
Some areas of contract law are governed by modern statutes that uniformly apply in all states.
Common law will continue to govern those contracts that have not been modified or replaced by statutory law such as the UCC.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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