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All rights reserved

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ESSENTIALS OF BUSINESS AND
ONLINE COMMERCE LAW
1
st
Edition
by Henry R. Cheeseman
Chapter 7
Contracts: Classification,
Agreement, and Consideration
Copyright 2006 by Pearson Prentice-Hall. All rights reserved. 07 - 2
Introduction
Contracts are the basis of many of our daily
activities
They provide the means for individuals and
businesses to sell and otherwise transfer
property, services, and other rights
Without enforceable contracts, commerce
would collapse
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Definition of a Contract
A contract is an agreement that is
enforceable by a court of law or equity

If one party fails to perform as promised, the
other party can use the court system to
enforce the contract and recover damages or
other remedy
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Parties to a Contract
Offeror The party who makes an offer to enter into a
contract
Offeree The party to whom an offer to enter into a contract
is made
Offer
Acceptance
Offeror Offeree
Offeror makes an
offer to the offeree
Offeree has the power
to accept the offer and
create a contract
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1. Agreement 2. Consideration
3. Contractual
Capacity
4. Lawful Object
Elements of a Contract
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Sources of Contract Law
1. The Common Law of Contracts
2. The Uniform Commercial Code
3. The Restatement of the Law of Contracts
4. Uniform Computer Information Transactions
Act (UCITA)
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Classifications of Contracts:
Formation (1 of 2)
1. Bilateral contract a promise for a promise

2. Unilateral contract A promise for an act

3. Express contract A contract expressed in
oral or written words

4. Implied-in-fact contract A contract inferred
from the conduct of the parties
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Classifications of Contracts:
Formation (2 of 2)
5. Quasi-contract A contract implied by law to
prevent unjust enrichment

6. Formal contract A contract that requires a
special form or method of creation

7. Informal contract A contract that requires
no special form or mode of creation
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Classifications of Contracts:
Enforceability
1. Valid contract A contract that meets all of
the essential elements to establish a contract
2. Void contract No contract exists
3. Voidable contract A party has the option of
voiding or enforcing the contract
4. Unenforceable contract A contract that
cannot be enforced because of a legal
defense
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Classifications of Contracts:
Performance
1. Executed contract A contract that is fully
performed on both sides

2. Executory contract A contract that is not
fully performed by one or both parties
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Agreement
Agreement the manifestation by two or
more persons of the substance of a contract

It requires an offer and an acceptance
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Offer
The manifestation of willingness to enter into
a bargain, so as to justify another person in
understanding that his assent to that bargain
is invited and will conclude it [Section 24 of
the Restatement (Second) of Contracts]
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Termination of an Offer
1. Revocation of the offer by the offeror
2. Rejection of the offer by the offeree
3. Counteroffer by the offeree
4. Destruction of the subject matter
5. Death or incompetence of the offeror or
offeree
6. Supervening illegality
7. Lapse of time
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Option Contracts
An offeree can prevent the offeror from
revoking his or her offer by paying the offeror
compensation to keep the offer open for an
agreed-upon period of time
This payment is called an option contract
The offeror agrees not to sell the property to
anyone but the offeree during the option
period
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Acceptance
A manifestation of assent by the offeree to
the terms of the offer in a manner invited or
required by the offer as measured by the
objective theory of contracts [Section 50 of
the Restatement (Second) of Contracts]
The oferees acceptance must be
unequivocal
The mirror image rule
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Time and Mode of Acceptance (1 of 2)
Mailbox Rule (Acceptance-Upon-Dispatch
Rule)
An acceptance is effective when it is dispatched

Proper Dispatch
An acceptance must be properly addressed,
packaged, and posted to fall within the mailbox
rule
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Time and Mode of Acceptance (2 of 2)
Express Authorization
A stipulation in the offer that says the acceptance must be
by a specified means of communication
e.g., registered mail, telegram
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Offer and Acceptance - Summary
Communication by Offeror Effective When
Offer Received by offeree
Revocation of offer Received by offeree
Communication by Offeree Effective When
Rejection of offer Received by offeror
Counteroffer Received by offeror
Acceptance of offer Sent by offeree
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Consideration
Consideration something of legal value
given in exchange for a promise
Consideration must be given before a
contract can exist
Most common types of consideration:
Tangible payment (e.g., money or property)
Performance of an act (e.g., providing legal services)
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Gift Promise
Gift promises (gratuitous promises) are
unenforceable because they lack
consideration

A completed gift promise becomes a true
gift, which by definition is irrevocable
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Contracts Lacking Consideration (1 of 2)
Illegal Consideration
A contract cannot be supported by a promise to refrain
from doing an illegal act because that is illegal
consideration
Contracts based on illegal consideration are void
Moral Obligations
Promises made out of a sense of moral obligation or honor
are generally not enforceable on the ground that they lack
consideration
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Contracts Lacking Consideration (2 of 2)
Preexisting Duty
A promise lacks consideration if a person promises to
perform an act or do something he or she is already under
an obligation to do
The promise is unenforceable because no new
consideration has been given
Past Consideration
Past consideration (e.g., prior acts) will not support a new
contract
New consideration must be given
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The United Nations Convention on Contracts
for the International Sale of Goods (CISG)
Applies to contracts for the international sale
of goods
i.e., the buyer and seller must have their places of
business in different countries
Additionally, either
both of the nations must be parties to the convention, or
the contract specifies that the CISG controls