chapter 8— introduction to contracts – classifications, terminology and formation reed shedd...
TRANSCRIPT
Chapter 8—Introduction to Contracts –
Classifications, Terminologyand Formation
REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD
F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N
TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness
McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights
reserved.
8-2
A contract involves apromise or commitment
(or exchanges of promises or commitments)
to do or not to do something.
Introduction
8-3
Learning Objectives To introduce to fundamental concepts of contracts.
To understand how contracts are classified and the terminology used to describe contracts.
To appreciate the requirements needed to create a contractually-enforced commitment.
To learn how the required elements of a contract are used by courts to decide whether or not a contract exists.
To comprehend how contracts can benefit parties other than the original parties to an agreement.
8-4
think
TANKthink
TANKthinkthink
TANKTANKAll promises are legal contracts.All promises are legal contracts.
a.a. True True b.b. FalseFalse
8-5
Contract May not need to be formal or
written Promise to perform or not
perform Legally enforceable Improves buyer/seller relationship
8-6
Legislation•Uniform Commercial Uniform Commercial CodeCode
•Contracts for goodsContracts for goods
Common Law•Judges’ decisionsJudges’ decisions
•Contracts for other Contracts for other than goodsthan goods
Contract law comes from either
Sources of Contract Law
8-7
Breach Of Contract
Party does not perform Remedies-mitigate damages
Negotiated SettlementNegotiated Settlement
ArbitrationArbitration
Damage Damage AwardAward
Specific Specific PerformancePerformance
RescissionRescission
RestitutionRestitution
8-8
Contract Classifications
ExpressExpress-- Terms Terms
DiscussedDiscussed
Implied-In-Implied-In-FactFact--
No Discussion No Discussion But Implied But Implied
from from ContractContract
Implied-In-Implied-In-LawLaw-- Neither Neither
DiscussionDiscussionNor Conduct Nor Conduct
But One But One Party Unduly Party Unduly
EnrichedEnriched
Bilateral/Unilateral
8-11
Contract Enforcement
Enforceable- court uphold validity Unenforceable- party has justifiable reason
for noncompliance Valid- essential requirements present Void- lacks validity/enforceability Voidable- party has right to withdraw
8-12
Contract Performance Executed- promises
performed
Executory- promises not yet performed
Performance important in more complicated transactions
8-13
Contract Formation
Offer
Offeror
Acceptance
Offeree
AGREEMENTCapacity and
Legality
Supported by
Consider-ation
8-14
Offer
Offeror
Acceptance
Offeree
Intent/CommitmentIntent/Commitment
DefinitenessDefiniteness
TerminationTermination
AcceptanceAcceptance•Bilateral- PromiseBilateral- Promise
•Unilateral- PerformanceUnilateral- Performance
•Mirror Image RuleMirror Image Rule
•Silence Silence = Acceptance= Acceptance
•Deposited AcceptanceDeposited Acceptance
•Mailbox RuleMailbox Rule
Offer and Acceptance
8-15
Offer
Offeror
Acceptance
Offeree
Offer Termination
Contract ProvisionContract Provision Lapse Of TimeLapse Of Time RejectionRejection RevocationRevocation Destruction Of SubjectDestruction Of Subject Offeror’s Death or InsanityOfferor’s Death or Insanity Performance Becoming IllegalPerformance Becoming Illegal
8-16
Offeror Offeree
Something Of Legal Value
Something Bargained For
Supported By
Consideration
Offer Acceptance
AGREEMENT
Consideration
8-18
Capacity of Parties Minors
Under age 18 Exceptions for necessaries Voidable/disaffirm
Intoxicated persons/mentally incompetent or impaired
8-19
Voidable Contracts Fraud Misrepresentation Duress Undue Influence Mistake
Mutual Unilateral
Mutual Assent
8-20
Lawful Purpose Restraint Of Trade-
Illegal/Void Examples
Gambling Usurious Unlicensed Exculpatory Unconscionable Prohibited
Covenant Not To Compete
8-21
Third Party Rights3rd parties may be
involved in contracts • intended
• unforseen
3rd parties beneficiaries
• creditor• donee• incidental
8-22
Other Contract Issues
Assignment Transfer of rights to
contract Notice to obligator
Certain contracts cannot be assigned
Novations Original parties relieve obligor
from liability Substitute made
8-23
pop
QUIZpop
QUIZpoppop
QUIZQUIZGeorge, a handyman, is hired to enclose the porch George, a handyman, is hired to enclose the porch on Peter’s vacation cottage in the off-season. No oneon Peter’s vacation cottage in the off-season. No oneis around Peter’s cottage or any of the surroundingis around Peter’s cottage or any of the surroundingcottages. George is accidentally let in to the wrong cottages. George is accidentally let in to the wrong cottage by the property manager and encloses thecottage by the property manager and encloses theporch on Joan’s cottage. Does George have a remedy porch on Joan’s cottage. Does George have a remedy in in contractcontract to be paid for his work? to be paid for his work?
a.a. YesYesb.b. NoNo