Chapter 4.1

Agreements and Contracts

Key Points

Nature and importance of contractsElements of contractsDifferent classifications of contracts

Express or Implied Unilateral or Bilateral Oral or Written

Contracts

Most people view contracts as long, printed, formal documents that are signed when buying a vehicle, selling a house, or purchasing insurance.Those only represent a small fraction of contracts that you will make in your lifetime.

Contracts

You create a contract anytime you agree to exchange things of value.

Buying fast foodFilling your car with gasSigning up for an email accountRenting a video

Contract

Any agreement enforceable by law.

You should never enter into a contract without understanding the legal responsibilities involved.

Contract

Not ALL agreements are contracts

Promising to take out the trash is NOT a contract

Posting an ad in the newspaper and offering a reward for a lost dog IS a contract. If someone answers the ad and returns the dog, that person is owed what was promised in the ad.

6 Elements of a Contract

OfferAcceptanceGenuine AgreementConsiderationCapacityLegality

Offer

A proposal made by one party (offeror) to another party (the offeree) indicating a willingness to contract.Intent: create a legally binding agreement

Acceptance

The agreement of the offeree to be bound by the terms of the offer.

The second party’s unqualified willingness to go along with the first party’s proposal.

Genuine Agreement

Means that an agreement is true and genuine.Offer and acceptance need to occur in order for a contract to lead to a genuine agreement.It is a meeting of the minds.An agreement can be destroyed by fraud, misrepresentation, mistake, duress (pressure or force), or undue influence.

Capacity

Legal ability to enter a contract.

Minors, mentally impaired, and individuals under the influence are people who are generally excused from contractual responsibility.

Consideration

The thing of value promised to one party in a contract in exchange for something else of value promised by another party.The mutual exchange binds the parties together.

Consideration Example

Suppose Adam agree to sell his iPod for $50 to Amy. Amy agrees to buy it at that price. Adam has made a promise to sell. Amy has made a promise to buy. Each promise is consideration for the other.

Legality

Means the contract does not entail violating the law.

Example: Agreeing to commit a crime or a tort.

Even if all 5 other elements are present, a contract can be void if it violates the law.

Legality Example

Luis, a candidate for mayor, agreed to pay Sandra, a newspaper reporter, $1000 to write an article containing false statements that would damage the reputation of Edward, Luis’ opponent. Since this agreement required Sandra to commit libel, it is illegal.

Characteristics of a Contract

Valid, void, voidable, and unenforceableExpress or impliedBilateral or unilateralOral or writtenExecutory or Executed

Characteristics Of A Contract

ValidMeans legally good. Legally binding

VoidHas no legal affectA contract that is missing one of the 6 elements would be void

Ex. One of the parties is a minor

When a party to a contract is able to void or cancel a contract, it is called a voidable contract.

Characteristics Of A Contract

A contract between two minors can be voided by either one of them because minors have the right to get out of contracts.

Unenforceable

A contract that the court will not uphold, generally because of some rule of law, such as the statute of limitation.

If you wait too long to bring a lawsuit for breach of contract, the statute of limitation may have run its course, making the contract unenforceable.

Express or Implied Contracts

ExpressContract statement that may be oral or written.

ImpliedContract that comes about from the actions of the parties involved.People often enter implied contracts without saying a word to each other at all.

Implied contract example

If you go to a self-service gas station that requires payment before the attendant will turn on the pump, you can simply hand the attendant your money without saying a word, pump your gas, and drive away.An implied contracts arises based on actions.

Bilateral

A contract that contains 2 promises.

One party promises to do something in exchange for the other’s promise to do something else.Most contracts are created this way.One person says “I’ll sell you my DVD player for $50” the other person says “I’ll buy it.”

Unilateral

A contract that contains a promise by only one person to do something, if and when the other party performs some act.

Unilateral Vs. Bilateral Contract

Unilateral Example

Your friend says “I’ll sell you my DVD player for $150 if you give me cash by noon tomorrow.”He or she will not be required to keep the promise unless you hand over the cash before noon on the following day.

Reward Offer

One of the most common instances of a unilateral.The acceptance of the reward must precisely comply with the offer.If there is an ad in the newspaper for a reward for a lost computer, the ad alone did not create the contract. The contract comes into play only when the laptop is returned.

Oral Contract

Created by word of mouth and comes into existence when two or more people form a contract by speaking to each other. One person usually offers to do something, and another person usually offers to do something in return.

Written Contract

Assures both parties know the exact terms of the contract and also provides proof that the agreement was made.

Executory

A contract that has not yet fully been performed.Both sides still have something to do in order for the contract to be complete.If you say “I will give you $5 for that t-shirt” I say “okay” Until the exchange has taken place, the contract is not fully complete.

Executed

A contract that has been completed and or fully performed.If you say “I will give you $5 for that shirt.” I say “Okay.” You hand me the $5 and I hand you the shirt. Then the contract can be considered executed (complete).

Celebrity Endorsements Gone Wrong

15 Celebrity Endorsements Gone Wrong

Agenda 1/13

In the NewsCelebrity Contracts Gone WrongContract Law Webquest

Chapter 4.2

How A Contract Begins

Key Points

Requirements of a value offerRequirements of an acceptanceDifference between an offer, an invitation, to negotiate, an acceptance, and a counterofferHow offers are terminated

Review: Page 88

Elements of a contract:OfferAcceptanceGenuine AgreementCapacityConsiderationLegality

Review

Offeror: Person making the offer

Offeree: Person receiving the offer

Offer

Has 3 basic requirements:Serious IntentNeeds to be Definite and CertainCommunicated to the offeree

Serious Intent

An offer must be with the intention of entering into a legal obligation

An offer made in the heat of anger or as a joke would not meet this requirement.For example, a friend complaining about her unreliable car might say “Give me $5 and its yours.”Your friend cant be forced to sell it for $5

Invitations to Negotiate

Invitations to deal, trade, or make an offer.

This is often confused with an offer.

Invitation To NegotiateAn ITN is simply allowing discussions to occur that could lead to an offer and acceptanceIn contracting an agreement is not valid unless there is an official offer and acceptance of it, and then an exchange of something of value. The ITN is none of these; it simply opens to door as a notice to start talking about potential offers and related details.

Invitation to Negotiate: Scenario

A store puts an ad in the newspaper/a magazine/a catalogStores don’t have enough merchandise to sell it to the amount of people who may see the ad.The ad is seen as an invitation to negotiate, It is NOT an offer.

This is also the case is there is a misprint in an ad. It is not a contract.

Invitation to Negotiate

Some advertisement can be seen as offers when they contain a specific promise

“First come first serve”Number of people who can buy it becomes limited, making the advertisement an offer.

Invitation to Negotiate Examples

Price TagsSigns in a store window or on the countersPrices marked on merchandise

Definiteness and CertaintyAn offer must be definite and certain to be enforceable

Having distinct limits with no uncertainty

A landlord of an apartment with faulty plumbing might agree to pay a share of the cost if the tenant fixes the plumbing.Court would not enforce this contract because its not possible to determine what is meant by the word “share”

Communication to the Offeree

Offers can be made by:TelephoneLetterTelegramFaxEmailOr any method that communicates the offer to the offeree.

Requirement of an Acceptance

Acceptance must be unconditionalIt must follow the rules regarding the method of acceptance.

Willing to go along with party’s proposal.

Unconditional Acceptance

Acceptance must not change the terms of the original offer in any way according to the mirror image ruleMirror image rule

The terms stated in the acceptance must exactly mirror or match the terms of the offerThe Acceptance must mirror the offer

Unconditional Acceptance

Any change in the terms of the offer means the offeree has not really accepted the offer, but has made a counteroffer.Counteroffer

A response to an offer in which the terms of the original offer are changed.

Unconditional Acceptance

When a Counteroffer occurs…The two parties change roles.The original offeror becomes the offeree; and the offeree becomes the offeror.

Mirror Image Exceptions

Contracts for personal property such as:

ClothingFurnitureFoodMotor VehiclesAppliances Etc.

Methods of Acceptance

This is when a contract comes into existence.

When parties are dealing face-to-face or on the phone, no problems exist. Each party listens and talks about contract. A conversation occurs.

Methods of Acceptance

When communicating by letter, telegram, or fax, special rules apply.An acceptance that must be sent over long distances is effective when sent.

Termination Of An Offer

Even though an offer has been properly communicated to the offeree; it may be terminated.

Termination can occur in the following ways: Revocation, Rejection, Counteroffer, Expiration of time, and death or insanity.

Revocation

Is the taking back of an offer by the offeror due to:

Change of mindCircumstances result in deciding to withdraw the offer before it has been accepted.

Revocation

2 important rules govern revocation

1. An offer can be revoked any time before it is accepted2. A revocation becomes effective when it is received by or communicated to the offeree.

Rejection

A refusal of an offer by the offeree that brings the offer to an end.

Example: If someone says “I’ll sell you my camera for $150.” and you say, “I don’t want it!” The offer has come to an end.

Counteroffer

Ends the first offerNo contract comes into existence unless the original offeror accepts your new offer.Roles often change...

The original offeror becomes the offeree; and the offeree becomes the offeror

Expiration of Time

If the offeror sets a time limit for the acceptance of the offer, it must be honored.Brad says to Joe, “I will sell you my motorcycle for $2,000 if you give me the money by noon tomorrow.” Joe must accept the time frame. After Noon, if Joes doesn’t come up with the $2000 the offer is no longer existent.

Expiration Of Time

Option ContractWhen an offeree pays money or other consideration to an offeror to hold an offer open for an agreed period of time.It is a binding promise to hold an offer open for a specified period of time.

Death or Insanity

If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end.Death ends an offer, but does not end a contract, except contracts related to personal services.