Unit 5

N AT U R E A N D C L A S S E S O F
CONTRACTS
LEARNING OBJECTIVES

1 2 3
State the five Describe the types of Explain the
requirements for a contracts and how difference between a
valid contract. they differ from contract and a quasi
agreements. contract.
5.1 DEFINITION OF CONTRACT
A N D VA L I D R E Q U I R E M E N T S

A contract can be defined as a legally

enforceable agreement between two or more
competent persons.

A breach of contract is the failure of one of the

parties to perform the obligations assumed
under the contract.
R E Q U I R E M E N T S O F A VA L I D
CONTRACTS

1. Based on a mutual
agreement by the parties
2. Made by competent parties
3. Supported by consideration
given by each party to the
contract
4. Be for a lawful purpose
5. Sometimes meet certain
formal requirements
 Express and implied

Unilateral and bilateral

5.2 Written and oral

C L A S S I F I C AT I O N
OF CONTRACTS
Executory and executed

Valid contracts, void agreements, and

voidable contracts
5 . 3 C A PA C I T Y T O C O N T R A C T W I T H
C A S E S O F M I N O R , I N T O X I C AT E D P E O P L E
A N D M E N TA L LY I N C O M P E T E N T P E O P L E

1. Can a mail-order company void a

contract with a minor if the minor bought
items for personal use?

2. Can a minor purchase a car then

disaffirm the contract after wrecking it?

3. Is a minor who owns a lawn service

responsible to uphold contracts for the
payment of fertilizer?
C A PA C I T Y T O C O N T R A C T

1. Can a mail-order company void a

NO!
contract with a minor if the minor bought
items for personal use?

YES,
2. Can a minor purchase a car then with
disaffirm the contract after wrecking it? some
provision
s

YES,
3. Is a minor who owns a lawn service
they are
responsible to uphold contracts for the
liable for
payment of fertilizer?
contracts
 WHEN CONTRACTING
WITH A MINOR...
Minors’ business contracts are enforceable and binding.

• Some states prevent a minor from voiding some

contracts

A minor can sometimes disaffirm a contract.

The minor may ratify the contract after attaining majority.

O T H E R C O N S I D E R AT I O N S
CONCERNING MINORS

Businesspeople must know how to be protected when

contracting with minors.

• Have an adult join in the contract as a cosigner

Sometimes businesspeople accept the risk of

contracting with minor because few minors exercise
their rights to void contracts.
I N C A PA C I T Y
WHEN PROOF OF ORAL
CONTRACT IS PERMITTED

If it can be
proven that If a person
goods were voluntarily
If the goods
delivered If full acknowledg
in question If goods are
by seller payment es a fact
are of sold during
and were has been under oath
nonresellab auction.
received made; during a
le nature;
and legal
accepted by proceeding;
buyer;
N AT U R E O F W R I T I N G
REQUIRED

The writing need only give assurance

Terms that a transaction existed.

A suit brought to an individual in which the

terms must be in writing must be signed by
Signature the person being sued or an authorized
agent.
N AT U R E O F W R I T I N G
REQUIRED 2

Time of A writing may be made at or any time

execution after the sale

Formal writings such as bills of sale,

Particular
letters, formal contracts, and telegrams will
writings satisfy the Statute of Frauds
CONTRACT OR AGREEMENT?

All contracts are agreements, but not all agreements are

contracts.
 VOID AND
VOIDABLE
CONTRACTS
• A void contract is an
agreement with no legal effect
• It is not enforceable in court.
• It is not the same as an
unenforceable contract.
• A voidable contract would be
an enforceable agreement, but,
because of circumstances, one
or both parties may elect to
void it
5.4 FORMAL REQUIREMENTS WITH UCC

• The Uniform Commercial Code (UCC) takes into account that

commercial agreements are often unwritten. As a result, the
UCC generally doesn't require contracts to be in writing.
However, the UCC does require written contracts in only a
few situations, such as:
• certain contracts for the sale of goods under UCC Article 2
• certain lease contracts for goods under UCC Article 2A, and
• agreements that create a security interest in personal property
where the property isn't in the possession of the secured party
(the creditor).
Those are:
WRITTEN CONTRACTS

• An agreement to sell land or any interest in or concerning land

• An agreement the terms of which cannot be performed within
one year from the time it is made
• An agreement to become responsible for the debts or default
of another
• An agreement of an executor or administrator to pay the debts
of the estate from the executor’s or the administrator’s
personal funds
• An agreement containing a promise in consideration of
marriage
• An agreement to sell goods for $500 or more