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Essentials of Business Law 8th Edition Liuzzo Solutions Manual Download
Essentials of Business Law 8th Edition Liuzzo Solutions Manual Download
Essentials of Business Law 8th Edition Liuzzo Solutions Manual Download
INSTRUCTOR’S MANUAL
LESSON OVERVIEW
In Chapter 7 we are introduced to the legal meaning of the term contract. A contract is a
legally enforceable agreement that is created when two or more competent parties agree
to perform, or to avoid performing, certain acts that they have a legal right to do and that
meet certain legal requirements. We differentiate a contract from an agreement, state the
purpose of a contract, and explore the elements that make a contract enforceable. The
chapter also briefly introduces the kinds of contracts—oral or written, express or implied,
formal or simple, and entire or divisible. This chapter also discusses the status of a
contract—is the contract in the process of completion, or completed? Finally we take a
look at the enforceability of the contracts. Students need to recognize that Chapter 6
merely offers an introduction to these topics which will be explored in detail within the
later chapters.
CHAPTER OUTLINE
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook
margins, and placed in bold in the copy. They are listed here for your quick reference.
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and
information that should be understood upon completion of the chapter. You may want to
access the PowerPoint (PPT) slides for Chapter 7 when you begin the study of the
chapter and discuss each Learning Outcome. Each Learning Outcome will be covered
separately in the Instructor Notes, but they are shown here in total as an overview of the
sections being presented in Chapter 7. The corresponding text page numbers and PPT
slides are listed next to each outcome. These slides should be used to reinforce the main
LECTURE OUTLINE
A. THE NATURE OF A CONTRACT
A contract is a legally enforceable agreement that is created when two or more
competent parties agree to perform, or to avoid performing, certain acts that they
have a legal right to do and that meet certain legal requirements. The Uniform
Commercial Code (UCC) defines a contract as “the total legal obligation which
results from the parties’ agreement as affected by the Uniform Commercial Code
or any other applicable rules of law” [UCC 1-201(11)].
B. SOURCES OF CONTRACT LAW
The part of the UCC that is relevant to contract law is Article 2. However, Article
2 applies only to transactions in goods or other tangible personal property.
Tangible personal property can be defined as personal property that can be
moved, such as a vehicle, kitchen table, or computer. Common law, on the other
hand, is the source of contract law regarding the sale of fixed assets, services, or
intangibles.
If an agreement imposes a legal obligation, an enforceable contract results; if it
imposes only a social or moral obligation, however, it is not a contract and is not
legally enforceable.
C. AGREEMENTS THAT RESULT IN CONTRACTS
All contracts are agreements, but not all agreements are contracts. Since
agreements very often deal with personal or social matters they cannot be
enforced by law. If an agreement imposes a legal obligation, an enforceable
contract results.
D. PURPOSE OF A CONTRACT
Contracts may be created for any number of reasons. A contract also may be
extended and revised as needed to reflect the wishes of the parties.
E. ELEMENTS OF AN ENFORCEABLE CONTRACT
To be legally enforceable, a contract must contain six elements:
(1) offer and acceptance, (2) mutual agreement, (3) consideration, (4) competent
parties, (5) legality of purpose, and (6) proper form.
If one of these elements is missing, the courts will usually refuse to enforce the
contract.
1. Offer and Acceptance
An offer is a proposal made by one party, the offeror, to another party,
the offeree, that indicates a willingness to enter into a contract. An
acceptance is an indication made by the offeree that he or she agrees to be
bound by the terms of the offer.
2. Mutual Agreement
The parties to a contract must have a clear understanding of what they are
undertaking. The contract must show mutual agreement, sometimes
referred to as a meeting of the minds.
3. Consideration
In most cases, each party to a contract must promise either to give up
something of value that he or she has a legal right to keep, or to do
something that he or she is not otherwise legally required to do. This
exchange of promises is called consideration.
4. Competent Parties
The parties to a contract must be competent, that is, be capable of
understanding what they are doing. They must be of legal age and normal
mentality. The functioning of a party’s mind must not be impaired by
injury, mental disease, or the influence of drugs or alcohol.
5. Legality of Purpose
The intent of the contract must not violate the law. It must have legality of
purpose. The courts will not enforce a contract to do something that
violates the law.
6. Proper Form
Certain contracts, such as those involving the sale of personal property for
$500 or more, or those that cannot be fulfilled within a year, must be in
writing to be enforceable. Other kinds of contracts must not only be in
writing, but must also follow a prescribed form (containing the signatures
of the parties). These requirements for contracts are known as proper
form.
F. KINDS OF CONTRACTS
Contracts may be classified in several ways, depending on the manner in which
they are created, expressed, or performed.
1. Oral Contracts
An oral contract is one that is not in writing or signed by the parties. That
is, it is a real contract created entirely by the conversation of the parties.
2. Written Contracts
A written contract is one that is reduced to writing on a permanent
surface. Although an oral contract may be just as binding as a written
contract, it is advisable to put a contract in writing if the transaction is
important or complicated, if the contract involves a large amount of
money, or if the contract will extend over a long period of time.
The law does not specify any particular form or language to be used. It is
sufficient that the parties clearly express themselves in understandable
language.
A written contract can be simply a handwritten note.
3. Express Contracts
A contract that specifically states the agreement of the parties, either orally
or in writing, is called an express contract. The term is used to
distinguish such contracts from others in which the meaning or the
intention of the parties is inferred from their actions.
4. Implied Contracts
The terms of some agreements can be understood from the actions or
conduct of the parties, from the customs of the trade, or from the
lots, the price, if it can be apportioned, may be demanded for each lot”
(UCC 2-307).
G. STATUS OF CONTRACTS
Contracts frequently have a long life. At any particular time, a contract may be
awaiting the first act of the parties to execute its terms, in the process of
completion, or completed.
1. Executory Contracts
An executory contract is one in which some future act or obligation
remains to be performed under its terms. A contract is completely
executory if no part of it has been performed. It is partly executory if some
parts have been performed and some have yet to be performed.
2. Executed Contracts
A contract in which all of the terms of the agreement have been fully
performed by both parties is an executed contract. An executed contract
is not really a contract at all. It is more a record of an agreement that has
been completed in all respects by all the parties.
H. ENFORCEABILITY OF CONTRACTS
It is important to determine whether a contract is valid, void, or voidable, because
not all contracts can be enforced.
1. Valid Contracts
The vast majority of contracts entered into in any business day are valid. A
valid contract is an agreement resulting in an obligation that is legally
enforceable. It meets all the requirements of a contract because all six
essential elements are present.
2. Void Contracts
An agreement that lacks one or more of the essential elements of a
contract is a void contract from the very beginning. That is, it is not a true
contract at all and is therefore unenforceable.
3. Voidable Contracts
An agreement that may be rejected by one of the parties for a legally
acceptable reason is a voidable contract. Such a contract is valid and
enforceable unless and until it is rejected by the party who has the right to
withdraw.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcomes in
Chapter 7. Every outcome is also mapped to corresponding text page numbers, PPT
slides, and relevant chapter assessment exercises and activities for ease of reference and
use.
LO1. Describe the nature of a contract.
A contract is a legally enforceable agreement.
Text Pages: 108
PowerPoint: Slide 2
LO7. Explain the status of contracts and differentiate between executory and
executed contracts.
Contracts frequently have a long life. At any particular time, a contract may be
awaiting the first act of the parties to execute its terms, in the process of
completion, or completed. An executory contract is one in which some future act
or obligation remains to be performed under its terms. An executed contract is one
in which the terms of the agreement have been fully performed by both parties.
Text Pages: 113-114
PowerPoint: Slides 12-14
Case Questions: 37-38
LO8. Describe the enforceability of contracts in terms of valid, void, and voidable
contracts.
Valid contracts are agreements resulting in obligations that are legally
enforceable. Void contracts are agreements that lack one or more of the essential
elements of a contract. Voidable contracts are agreements that may be rejected by
one of the parties for a legally acceptable reason.
Text Pages: 114-116
PowerPoint: Slides 14-17
Discussion Questions: 30-31
1. k 4. l 7. c 10. g 13. e
2. a 5. i 8. j 11. f 14. o
3. b 6. h 9. d 12. n 15. m
True/False Quiz
Discussion Questions
26. Example 6.11 depicts an example of a typical offer and acceptance: Gorbea
offered Diaz Sign Company $800 to erect a specific sign within 30 days. Diaz
Sign Company indicated its acceptance of the offer by signing the contract.
27. In Example 6.11, there was no confusion regarding the amount, the specifications,
or the time limits for completion of the transaction. There was, in effect, a
meeting of the minds.
28. In Example 6.11, the Diaz Sign Company constructed and installed the sign
within the specified time.
29. A party who lacks competence might not be of legal age or normal mentality. The
functioning of a party’s mind must not be impaired by injury, mental disease, or
the influence of drugs or alcohol (see Chapter 9).
30. An example of a contract that would not be enforceable because it lacks legality
of purpose would be one that involves gambling (not sanctioned by the state), or
an agreement that requires one or both parties to violate the law (see Chapter 10).
31. Examples of agreements that would need to be in writing to be enforceable would
be those involving $500 or more, or those that cannot be fulfilled within a year
(see Chapter 11).
32. When addressing the issue of the fairness of the law, students need to recognize
that the objective of this aspect of the law is to protect minors who may not be
equal in their experience and bargaining savvy to adults. In cases in which a
minor’s experience and judgment is equal to that of an adult, the law would give a
minor an unfair advantage by allowing him or her to withdraw from a contract
simply because he or she is a minor.
33. Students should address the issue of the nature of the communication embodied in
an implied contract and the willingness of the parties to abide by such
communication.
34. Arguments relating to whether legislatures should interfere with the free will of
contracting parties will be spirited. Some students might suggest that when a
legislature declares some activities to be illegal, it is demonstrating a paternal,
“big brother” mentality. Others will counter that some individuals need
government action to protect them from themselves and their weaknesses.
35. Students should note the effect of inflation on laws that specify a monetary
amount.
36. It would be clearly unethical for an underage person, who looks much older, to
enter into a contract with another person who in good faith expects the underage
party to fulfill the terms of the contract.
Case Questions
39. a. Y b. Y c. Y
Case Analysis
40. Principle of law: To be enforceable a contract must include all six elements: (1)
offer and acceptance, (2) mutual agreement, (3) consideration, (4) competent
parties, (5) legal purpose, and (6) proper form.
Decision: Because mutual understanding was not present, the contract could not
be enforced. However, Esposito may be required to pay the reasonable value for
the repairs under the doctrine of unjust enrichment.
41. Principle of law: Consideration is an essential element to an enforceable contract.
Decision: The court ruled for the nephew, because his promise was forbearance,
that is, he avoided doing something that he had a legal right to do. (Although the
nephew had no legal right to drink and gamble, he did have a legal right to use
tobacco and swear.)
42. Principle of law: Proper form is an essential element to an enforceable contract.
Decision: Decision for Evans. The contract for this matter must be in writing to
be enforceable.
43. Principle of law: A divisible contract between parties allows a seller to collect
for the merchandise delivered or the portion of work performed.
Decision: If this case were to be brought to court, the ruling would probably be in
favor of Grogan.
Legal Research
44. Students should include information related to topics included in the interview
and might range from the many steps prudent small business persons take in the
course of conducting business, to the steps the interviewee routinely follows to
avoid problems involving contracts.
45. Students may retrieve the following Web sites: http://www.id.uscourts.gov/terms-
cd.htm#sectC; http://definitions.uslegal.com; http://www.duhaime.org/.
BONUS ACTIVITIES
• Ask students to find a sample contract online and, as a class, discuss whether each
contracts (i.e. lease or sublease contract, buying a car, fitness club membership,
etc.). Ask students how the contracts were valid, void, or voidable. Discuss
whether the contracts were oral, written, formal, simple, express, or implied.