unit 2 chapter 7

UNIT 2 CHAPTER 7How Contracts Arise

ELEMENTS OF A CONTRACT Contract= an agreement enforceable by law. Contracts have 6 elements: (don’t write this)

Offer Acceptance Genuine Agreement Consideration Capacity Legality

ELEMENTS OF A CONTRACT CONT. Offer = a proposal by one party to another

intended to create a legally binding contract.

Acceptance = the unqualified willingness to go along with the offer.

Valid offer + Valid Acceptance = gunuine agreement

HOW TO DESTROY GENUINE AGREEMENT…. Fraud Misrepresentation Undue Influence

CAPACITY The legal ability to enter a contract

Sane Sober Minor (are you old enough to enter into a

conract)

CONSIDERATION Exchange of things of value that creates

the bond between the parties to the contract.

Consideration must have a value that can be objectively determined. A promise, for example, to make a gift, or a promise of love or affection, is not enforceable because of the subjective nature of the promise.

LEGALITY People cannot agree to do illegal acts

Murder Theft

CHARACTERISTICS OF A CONTRACT

Valid, Void, voidable or uneforceable Bilateral or unilateral

Express or implied Oral or written

VALID, VOID, VOIDABLE, UNEFORCEABLE Valid = legally good

Contract would be legally binding

Void = no legal force Contract has no legal effect (if missing on of the

6 elements contract would be voided)

VALID, VOID, VOIDABLE, UNEFORCEABLE Voidable = one person is able to void or

cancel the contract for some legal reason

When one party can “get out of the contract” it is voidable (minor and adult – minor can get out, adult can’t)

Unenforceable = some rule of law is not able to be enforced in court. (read example p. 94)

EXPRESS, IMPLIED Express contract = stated in words and may

be oral or written. (example 1 was an express contract)

Implied contract = contract that comes from the actions of the parties. (example 2 p. 94)

A contract is implied when a party knowingly accepts a benefit from another party in cimcumstances where the benefit cannot be considered a gift. Therefore, the party accepting the benefit is under legal obligation to give fair value for the benefit received.

BILATERAL CONTRACT Contains 2 promises – one by each person.

One person promises to do something in exchange for the other person’s promise to do something.

A Promise for a Promise

UNILATERAL CONTRACT Contains one promise only

One person promises to do soemthing IF AND EWHEN THE OTHER PERSON PERFORMS SOME ACT.

A Promise for an Act.

WHAT KIND OF CONTRACT IS THIS?UNILATERAL OR BILATERAL?

I’ll sell you my pizza for $7.50

I will buy it!!

WHAT KIND OF CONTRACT IS THIS---- UNILATERAL OR BILATERAL?

Will you help me kidnap my son? Yes I will.

WHAT KIND OF CONTRACT IS THIS--- UNILATERAL OR BILATERAL?

I will sell you my dog for $20, but only for today.

I will buy your dog!!

ORAL CONTRACTS Created by word of mouth. Most contracts are oral.

WRITTEN CONTRACTS Good idea to get things in writing.

Everybody knows the exact terms of the contract and can prove the agreement was made.

REQUIREMENTS OF AN OFFER Valid offer is the first of the 6 elements that

creates a contract. Offer = a proposal by one party to another

party to enter into a contract.

Person making the offer is the offeror Person to who the offer is made is the offeree.

REQUIREMENTS OF AN OFFER It must be seriously intended. It must be definite and certain. It must be communicated to the offeree.

SERIOUS INTENT Must be made with the intent to enter into a

legal contract.

Can’t be a joke or offer made in anger.

Invitations to negotiate are NOT contracts (newspaper sale ads)

DEFINITENESS AND CERTAINTY Can’t be vague… I’ll pay “ a share:, I’ll buy at

“competitive prices”, I’ll pay “reasonable” rent.

Spell out exact terms.

Read example 5 pg. 97

COMMUNICATION TO THE OFFEREE Offers can be by phone, fax, letter, telegram,

but it must be communicated to the offeree.

Read example 6 pg. 97

REQUIREMENTS OF AN ACCEPTANCE Acceptance = unqualified willingness to go

along with the offer.

UNCONDITIONAL ACCEPTANCE Can’t change the terms of the original offer

in my way. Mirror image rule Any change in terms = a counteroffer.

Read example 7 pg. 97

UNIFORM COMMERCIAL CODE (UCC) Contracts for sale of goods are exceptions to

the mirror image rule.

Read the 2 paragraphs on pg. 98.

METHODS OF ACCEPTANCE When using the same type of communication

– the contract comes into existence when the acceptance is sent.

When using a different form of communication the contract comes into existence when the acceptance is received.

Read the Methods of Acceptance section

TERMINATION OF AN OFFER Revocation – taking back an offer by the

offeror. Can be revoked any time before it is accepted. Offeree is notified that offer is revoked.

REJECTION Offeree rejects the offer

Example: I don’t want to buy your dog.

COUNTEROFFER A counteroffer ends the first offer.

EXPIRATION OF TIME If offeror puts a time limit for acceptance it

must be complied with. If no time limit must be accepted within a

“reasonable time period”

Option = binding promise to hold an offer open for a specified period of time.

DEATH OR INSANITY If an offeror dies or becomes insance before

the offer is accepted, the offer comes to an end.

Death ends an offer, it does not end a contract, except for personal services.