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Chapter 9

BMGT 380 Chapter Notes - Chapter 9: Oral Contract, Executory Contract, Dunne D.1

Business and Management
Course Code
BMGT 380
William Mc Clenahan

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Chapter 9
I. The Nature of Contracts
A. The Functions of Contracts
A.1. Contract: a legally enforceable promise or set of promises; the contracting party
harmed by a breach of the contract is entitled to obtain legal remedies against
the breaching party
A.2. Contracts allow us to:
A.2.a. Enter into agreements with one another with confidence
that we may call upon the law, not just on good faith, to make sure the
agreements will be honored
A.2.b. Lets us create a type of private law-the terms of the
agreements that we make-that governs our dealings with others
A.2.c.Facilitate the planning that is necessary in a modern, industrialized
B. The Evolution of Contract Law
B.1. Did not assume major importance in society until the 19th century
B.2. Industrial revolution created the necessity for greater private planning and
certainty in commercial transactions
B.2.a. Freedom of contract: contracts should be enforced because
they are the products of the free wills of their creators, who should,
within broad limits, be free to determine the extent of their obligations
B.3. 20th century: dramatic increase in government regulation in private contractual
B.4. courts have become increasingly concerned with creating contract rules that
produce fair results
B.5. the agreement between the parties is still the heart of the contract
C. The Methods of Contracting
C.1. Not all contracts have to be in writing to be enforceable
C.1.a. Unless the law requires a written contract, an oral contract
that can be proven is as legally enforceable as a written one.
D. Basic Elements of a Contract
D.1. Offer: a set of promises must be based on a voluntary agreement
D.2. Acceptance: the offer must be accepted by both parties
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D.3. Consideration: to support each party’s promise
D.4. Capacity: the contract must be between parties who have the capacity to
D.5. Legal: the objective and performance of the contract must abide by all laws
II. Basic Contract Concepts and Types
A. Bilateral and Unilateral Contracts
A.1. Unilateral contract: only one party makes a promise
A.1.a. Perks café issues frequent buy cards to customers, stamps
the card for each purchase, and promises to give any customer a free
cup of coffee after buying 10 cups of coffee
A.1.b. Perks has made an offer for a unilateral contract; if and
when the customer buys 10 cups of coffee and has his card stamped 10
A.2. Bilateral contract: both parties exchange promises and the contract is formed as
soon as the promises are exchanged
A.2.a. If Perks promises to pay Willowtown $1,000/month if
Willowtown will promise to lease a kiosk in the mall to Perks for the
holiday season
A.2.a.i. Perks has made an offer for a bilateral contract; it is
offering a promise in exchange for a promise
A.2.a.ii. If Willowtown makes the requested promise, a
bilateral contract is formed at this point- even before the parties
begin performing any of the acts they promised to do
B. Valid, Unenforceable, Voidable, and Void Contracts
B.1. Valid contract: one that meets all of the legal requirements for a binding
B.1.a. Enforceable in court
B.2. Unenforceable contract: one that meets the basic legal requirements for a
contract but may not be enforceable because of some other legal rule
B.2.a. If a contract is one of those for which the statue of frauds
requires a writing, but no writing is made, the contract in
B.3. Voidable contract: those in which harmed parties have the legal right to cancel
their obligations under the contract
B.3.a. Contract induced by fraud or duress is voidable at the
election of the victimized party
B.3.b. The injured party has the right to cancel the contract if he
chooses; that right belongs only to the harmed party, and if he does not
cancel the contract, it can be enforced by either party
B.4. Void contracts: agreements that create no legal obligation and for which no
remedy will be given
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