Chapter 5: Contracts

Every contract may be placed in one of the following classifications:

1. Contracts, void agreements, and voidable contracts 2. Express and implied contracts 3. Formal and simple contracts 4. Executory and executed contracts 5. Unilateral and bilateral contracts

A contract must fulfill the following definite requirements: (5)

1. It must be based on a mutual agreement by the parties to do or not to do a specific thing. 2. It must be made by parties who are competent to enter into a contract that will be enforceable against both parties. 3. The promise or obligation of each party must be supported by consideration (such as the payment of money, the delivery of goods, or the promise to do or refrain from doing some lawful future act) given by each party to the contract. 4. It must be for a lawful purpose; that is, the purpose of the contract must not be illegal, such as the unauthorized buying and selling of narcotics. 5. In some cases, the contract must meet certain formal requirements, such as being in writing or under seal.

example of voidable contracts?

A contract made by an adult with a person not of lawful age (legally known as a "minor" or "infant") is often voidable by the minor

agreement vs contract

A contract must be an agreement, but an agreement need not be a contract

unenforcable agreement

Agreement that is not currently binding NOT the same as void

Contracts, Void Agreements, and Voidable Contracts

Agreements classified according to their enforceability

what contract will always be void?

An agreement between two parties to perform an illegal act is void. Nothing the parties can do will make this agreement an enforceable contract

How does an agreement result?

An agreement results whenever two or more people's minds meet on any subject, no matter how trivial. Only when the parties intend to be legally obligated by the terms of the agreement will a contract come into existence

void agreements

An agreement with no legal effect is void. An agreement not enforceable in a court of law does not come within the definition of a contract

What two items must be expressed in order to have an express contract?

Both their intention to contract and the terms of the agreement

implied contract

Contract with major terms implied by the parties' conduct is one in which the duties and the obligations that the parties assume are not expressed but are implied by their acts or conduct. The adage "Actions speak louder than words" very appropriately describes this class of contracts. The facts of a situation imply that a contract exists

formal contract

Contract with special form or manner of creation must be in a special form or be created in a certain way

written contract

Contract with terms in writing

oral contract

Contract with terms spoken

express contract

Contract with the terms of the agreement specified in words the parties express their intentions by words, whether in writing or orally, at the time they make the agreement. Both their intention to contract and the terms of the agreement are expressly stated or written

executory contracts and executed contracts

Contracts are classified by the stage of performance

express and implied contracts

Contracts classified according to the manner of their formation

Notice that quasi contracts arise because of strictly:

ETHICAL reasons -It is unfair for one person to benefit at the expense of another

voidable contract

Enforceable agreement that may be set aside by one party would be an enforceable agreement but, because of circumstances or the capacity of a party, one or both of the parties may set it aside distinguishing factor of a voidable contract is the existence of a choice by one party to abide by or to reject the contract

breach of contract

Failure or refusal to perform contractual obligations

Objectives:

Five Requirements of a contract Know the five classifications of Contracts: 1. Contracts, void agreements, and voidable contracts 2. Express and implied contracts 3. Formal and simple contracts 4. Executory and executed contracts 5, Unilateral and bilateral contracts Difference between an agreement and a contract

quasi contract or implied in law contract

Imposition of rights and obligations by law without a contract

How must a sealed contract be executed?

In order to execute a contract under seal, the word "seal" or the letters "L.S." should appear after the signatures. In some states the document itself must also recite that it is under seal

a quasi contract means?

It is not a true contract, because the parties have not made an agreement. Rights and obligations will be imposed only when a failure to do so would result in one person unfairly keeping money or otherwise benefiting at the expense of another

Recognizances

Obligation entered into before a court to do an act required by law a second type of formal contract, are obligations entered into before a court whereby people acknowledge that they will do a specified act that is required by law

void

Of no legal effect

unjust enrichment

One party benefiting unfairly at another's expense

unilateral contract

When an act is done in consideration for a promise -It is unilateral (one-sided) in that only one promise is made -A promise is given in exchange for an act

negotiable instruments

Writing drawn in special form that can be transferred as substitute for money or as instrument of credit third type of formal contract. They include checks, notes, drafts, and certificates of deposit

Why are contracts important in business?

because they form the very foundation upon which all modern business rests. Business consists almost entirely of the making and performing of contracts

contract

can be defined as a legally enforceable agreement between two or more competent people

bilateral contract

consists of a mutual exchange of promises to perform some future acts. One promise is the consideration for the other promise -Most contracts are bilateral, because the law states that a bilateral contract can be formed when performance is started

formal contracts include?

include contracts under seal, recognizances, and negotiable instruments

executed contracts

is one that has been fully performed by all parties to the contract

executory contract

one in which the terms have not been fully carried out by all parties

All contracts other than formal contracts are informal and are called:

simple contracts Generally speaking, informal or simple contracts may be in writing, oral, or implied from the conduct of the parties

The Uniform Commercial Code

the body of laws governing commercial transactions in the US.

Would an agreement to launder money be considered an unenforceable contract or void? Why?

void, because it is illegal

oral vs written

when a contract is oral, disputes may arise between the parties as to the terms of the agreement. No such disputes need arise about the terms of a written contract if the wording is clear, explicit, and complete

When does an executory contract become an executed contract?

when all obligations have been performed

When will the courts use unjust enrichment?

when there is a contract, but there is no remedy provided under the contract. An unjust enrichment offends our ethical principles, so the law imposes a contractual obligation to right the situation.