Nature of Traditional and E-Contracts, Freedom of Contract

CHAPTER 9
Nature of Traditional
and E-contracts,
Freedom of
Copyright © 2016 Pearson Education, Ltd.
Contract
Learning Objectives
 Define contract
 List the elements necessary to form a valid contract
 Sources of contract law
 Objective theory of contracts
 Distinguish between bilateral and unilateral contracts
 Describe and distinguish between express and implied-in-fact
contracts
 Describe and distinguish among valid, void, voidable, and
unenforceable contracts
Classifications of Contracts
Formal Informal
Contracts under seal, negotiable All other contracts
instruments, letters of credit…
Expres Implied
Spoken or written words
s Created by law based on act or
conduct of parties
Valid Voidable Void

Binding and enforceable Circumstances surrounding execution Without legal effect –
or lack of capacity allows rejection at unenforceable
option of one party
Executed Executory
Something remains to be done
Completely performed
Bilateral Unilateral
One promise in exchange for Only one party is obligated to
another promise perform after contract formation
Why are contracts
fundamental to business?
Solidify transfer of rights and duties

between parties
(compliance)
Introduction to Nature of Traditional

and E-Contracts
Most contracts are

Terms of a legally
Contracts are contract enforceable.
If a party fails to
voluntarily become perform a contract,
entered into by private law the other party
parties between the may call upon the
parties courts to enforce
the contract
Contract
Agreement that is enforceable by a

court of law or equity
Parties to a Contract
01 02
Offeror Offeree
Makes an offer to To whom the offer is
enter into a contract made
Offer and Acceptance

Elements of a Contract

01. Agreement between parties 03. Contractual capacity

 Offer and acceptance  For the contract to be
 Mutual consent enforceable against a person
If not, it is voidable
02. Consideration 04. Lawful object

 Promise supported by a  Legal/lawful object
bargained-for consideration  Against public policy
 Legally sufficient
If not, it is void/null

Defenses to the
Enforcement of a Contract

Is it enforceable or not?

Genuineness of assent
Consent of the parties
to create a contract
must be genuine
Writing and form
Voluntary consent / not Contracts should be in
duress, fraud, undue writing or in a certain
influence… form
Sources of Contract Law in the U.S.
 Common law of contracts: Contract law developed

primarily by state courts
 Uniform Commercial Code (UCC)

 Comprehensive statutory scheme which is divided into 9
main articles
 Goal is to create a uniform system of commercial law
among the fifty states
 Provisions take precedence over the common law of
contracts

Sources of Contract Law in the U.S.
 Restatement of the Law of Contracts: Compilation

of model contract law principles drafted by legal
scholars
 Second edition is referred to as Restatement

(Second) of Contracts
 Not a law
Lawyers and judges refer to it for guidance in contract
disputes because of its stature

Objective Theory of Contracts
Intent to enter into an

express or implied-in-fact Subjective intent of a
contract is judged by the party to enter into a
reasonable person contract is irrelevant
standard

Objective theory of contracts?
What was the intention?
Would a reasonable person viewing the

circumstances conclude that the parties
intended to be legally bound?
Conduct – actions – words
CASE 9.1 FEDERAL COURT CASE - Contract
Facebook, Inc. v. Winklevoss

640 F.3d 1034 Web 2011 U.S. App. Lexis 7430 (2011)
United States Court of Appeals for the Ninth Circuit
HELD: The U.S. court of appeals upheld the decision of the

U.S. district court, enforcing the settlement agreement.
1. Issue: Enforceability of Contracts (Settlement Agreement) / fraud

2. Rule: Existence/Objective Theory of Contracts (intent to enter into
a contract / physical circumstances surrounding contracts)
3. Analysis: [Genuineness of assent / writing and form] Express/valid.
4. Conclusion: Important dynamics to contracts that favor giving
effect to agreements [existence of contract]
 Should the Winklevoss’ have had their claims of fraud decided by

the court?
 Did anyone act unethically in this case?
E-Commerce
 Internet created a new form of commerce
 Sale and lease of goods and services and the licensing of

software by electronic means
 Uniform Computer Information Transactions Act

(UCITA): Establishes uniform legal rules for electronic
contracts and licenses
 Electronic contracts: Contract that is formed
electronically
 Electronic licenses - Required for computer and
software information
Bilateral and Unilateral

Contracts
 Bilateral contract
 Entered into by way of exchange of promises of the
parties – a promise for a promise [99%]
 Unilateral contract
 Offeror’s offer can be accepted only by the performance
of an act by the offeree – a promise for an act
Unilateral Contracts – Problems
Incomplete or Partial Performance
 Offeror attempts to revoke an offer. An offer:
Can be revoked any time prior to the offeree’s performance
Cannot be revoked if the performance has begun or has been

substantially completed
Formal Contracts
 Require a special form or method of creation
 Negotiable instruments
Require a special form and language for their creation
and must meet certain requirements for transfer
 Letter of credit
Agreement by the issuer of the letter to pay a sum of
money upon the receipt of an invoice and other
documents

Informal Contracts
 No special form or method is required for their creation
 Are fully enforceable and may be sued upon if breached
 Examples
 Leases
 Sales contracts
 Service contracts
Valid and Void Contracts
Valid contract: Consists of an agreement between the

parties
 Supported by legally sufficient consideration.
 Is between parties with contractual capacity.
 Accomplishes a lawful object.
 Enforceable by at least one of the parties.
Void contract: Neither party can enforce the contract

 Has no legal effect and neither party is obligated to
perform the contract.

Voidable, and Unenforceable
Contracts
 Voidable contract: One or both the parties have the
option to void his/her contractual obligations
 If the party with the option chooses to ratify the contract,
both parties must fully perform their obligations
 Unenforceable contract: There is some legal defense

to enforcement of the contract
 Parties may voluntarily perform a contract that is
unenforceable

Executed and Executory Contracts
Executed Executory
Contract Contract
Has been fully Has not been fully

performed on both performed either by
sides one or both sides
Types of Actual Contract
Express
Contract Implied-in-fact
Contract
An agreement that is
expressed in written or
oral words: A contract in
which agreement
 Offer, acceptance between parties
and mutual has been inferred
agreement (satisfied) from their conduct
 Personal and
business contracts
 Selchow & Richter Company (S&R) owns the trademark
to the famous board game Scrabble.
 Mark Landsberg wrote a book on the strategy for winning
at scrabble and contracted S&R to request permission to
use the Scrabble trademark.
 S&R requested a copy of Mark’s manuscript, which he provided.
 Prolonged negotations between the parties regarding the possibility of S&R’s
publication of the manuscript broke off.
 S&R brought out its own Scrabble strategy book.
Did S&R act ethically? Can Mark sue S&R for damages? Why?

Implied-in-Law Contract (Quasi-Contract)
 Created: Allows a court to award monetary damages to a

plaintiff for providing work or services to a defendant
even though no actual contract existed between the
parties [express contract]
 Imposed where:
 One person confers a benefit on another, who retains
the benefit
 It would be unjust not to require that person to pay for
the benefit received

Facts to be Established for Implied-in-

Fact Contracts
01 02 03
Defendant was
Plaintiff Plaintiff given an
provided expected to be opportunity to
property or paid by the reject the property
services to defendant for or services
the the property or provided by the
defendant services plaintiff but failed to
do so
Equity
Doctrine that permits judges to make decisions
based on fairness, equality, moral rights, and natural Fact & Law
law
Why do judges
resort to this?
No right to a jury
 An award of money damages at law trial in an
would not be the proper remedy equitable action
 Fairness requires the application of

equitable principles
Classifications of Contracts
Formation Enforceability Performance
Bilateral contract
Valid contract
Unilateral contract
Voidable contract
Express contract
Executed contract
Void contract
Implied-in-fact
Executory contract
contract Unenforceable
contract
Formal contract
Informal contract
1. Reading
 Book: Ch. 9
2. There is a handout
One last thing…
3. Quiz 1
 Quiz will take place next
Monday
 It will cover Lecture 2
 Quiz will be during lecture
(10 minutes)
 Consists of 5 MCQs

Nature of Traditional and E-Contracts, Freedom of Contract

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CHAPTER 9

Valid Voidable Void

Solidify transfer of rights and duties

Introduction to Nature of Traditional

Most contracts are

Agreement that is enforceable by a

Copyright © 2016 Pearson Education, Ltd.

Copyright © 2016 Pearson Education, Ltd.

01. Agreement between parties 03. Contractual capacity

02. Consideration 04. Lawful object

Copyright © 2016 Pearson Education, Ltd.

Copyright © 2016 Pearson Education, Ltd.

Copyright © 2016 Pearson Education, Ltd.

 Common law of contracts: Contract law developed

 Uniform Commercial Code (UCC)

Copyright © 2016 Pearson Education, Ltd.

 Restatement of the Law of Contracts: Compilation

 Second edition is referred to as Restatement

Copyright © 2016 Pearson Education, Ltd.

Intent to enter into an

Copyright © 2016 Pearson Education, Ltd.

What was the intention?

Would a reasonable person viewing the

CASE 9.1 FEDERAL COURT CASE - Contract

Facebook, Inc. v. Winklevoss

HELD: The U.S. court of appeals upheld the decision of the

1. Issue: Enforceability of Contracts (Settlement Agreement) / fraud

 Should the Winklevoss’ have had their claims of fraud decided by

 Internet created a new form of commerce

 Sale and lease of goods and services and the licensing of

 Uniform Computer Information Transactions Act

Bilateral and Unilateral

Unilateral Contracts – Problems

Incomplete or Partial Performance

 Offeror attempts to revoke an offer. An offer:

Can be revoked any time prior to the offeree’s performance

Cannot be revoked if the performance has begun or has been

 Require a special form or method of creation

Copyright © 2016 Pearson Education, Ltd.

 No special form or method is required for their creation

 Are fully enforceable and may be sued upon if breached

Valid contract: Consists of an agreement between the

Void contract: Neither party can enforce the contract

Copyright © 2016 Pearson Education, Ltd.

 Unenforceable contract: There is some legal defense

Copyright © 2016 Pearson Education, Ltd.

Executed and Executory Contracts

Has been fully Has not been fully

Types of Actual Contract

Copyright © 2016 Pearson Education, Ltd.

 Created: Allows a court to award monetary damages to a

Copyright © 2016 Pearson Education, Ltd.

Facts to be Established for Implied-in-

 Fairness requires the application of

Formation Enforceability Performance

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