CHAPTER 9

INTRODUCTION TO CONTRACT
LAW AND CONTRACT THEORY

DAVIDSON, KNOWLES & FORSYTHE

Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

THE IMPORTANCE OF CONTRACT LAW

 Law of contracts affects all aspects of daily
life.
 Commercial Law Contracts: having to do
with commerce.
 Common Law Contracts: derived from the
judgments and decrees of courts.

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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

THE IMPORTANCE OF CONTRACT LAW

 Definition of a Contract:
– Legally binding.
– Legally enforceable promise or set of
promises.
– Between two or more competent parties.
– Law recognizes a duty.

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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

ELEMENTS OF A CONTRACT
 Founded on an agreement.
– An offer and acceptance on that offer.
 Supported by consideration.
– Something bargained for and given in exchange
for a promise.
 Made by parties having the capacity to
contract.
– The legal ability to contract.

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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

ELEMENTS OF A CONTRACT
 Based on the parties’ genuine assent.
– Voluntary involvement as a party to the
contract.
 Grounded in a legal undertaking.
– Subject matter must be legal.
 Expressed in proper form.
– Written and oral contracts can be binding if
rules are understood and followed.

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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

FROM STATUS TO FREEDOM OF

CONTRACT AND BACK AGAIN
 Feudal society set social hierarchies.
 Contract law calls for the performance of
mutual duties and obligations.
 Law merchant and contracts were more
important than status.
 Lawmakers lately have restricted freedom
of contracts.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

CLASSIFICATIONS 0F CONTRACTS
 Formal vs. Informal Contracts.
 Unilateral vs. Bilateral Contracts.
 Valid, Voidable, Void, and Unenforceable
Contracts.
 Express vs. Implied Contracts.
 Executory vs.Executed Contracts.
 Quasi Contracts vs. Contracts Implied in
Fact.
© 2004 West Legal Studies in Business
A Division of Thomson Learning 7
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

CLASSIFICATION OF CONTRACTS
 Formal Versus Informal Contracts.
– Formal Contracts need a seal.
– Informal Contracts are simple and do not need a
seal.
 Unilateral Versus Bilateral Contracts.
– Unilateral Contracts is a promise on one side
only.
– Bilateral Contracts are promises on both sides.
© 2004 West Legal Studies in Business
A Division of Thomson Learning 8
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

CLASSIFICATION OF CONTRACTS
 Valid, Voidable, Void, and Unenforceable
Contracts.
– Valid Contract is legally binding and
enforceable.
– Voidable Contract can be affirmed or rejected at
the option of one or more of the contracting
parties.
– Void Contract can never have any legal effect.
 Unenforceable Contracts will not be given
effect by a court of law.
© 2004 West Legal Studies in Business
A Division of Thomson Learning 9
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

CLASSIFICATION OF CONTRACTS
 Express Versus Implied Contracts.
– Express Contracts the parties set forth their
intentions specifically and definitely in writing
or oral.
– Implied Contracts is inferred from the actions
or conduct of the parties.

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A Division of Thomson Learning 10
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.

CLASSIFICATION OF CONTRACTS
 Executory vs. Executed Contracts
– Executory Contract is when a promise remains
unfulfilled by one party.
– Executed Contract is when the parties have
fully performed the promise.
 Quasi Contracts versus Contracts Implied in Fact
– Quasi Contracts are implied in law.
– Implied in Fact Contracts hold that sufficient
evidence exists for a court to determine that the
parties were meant to contract with each other.
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