Unit 2 Chapter 7

1. Unit 2 Chapter 7 How Contracts Arise

2. 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

3. 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

4. How to destroy genuine agreement…. • Fraud • Misrepresentation • Undue Influence

5. Capacity • The legal ability to enter a contract • Sane • Sober • Minor (are you old enough to enter into a conract)

6. 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.

7. Legality • People cannot agree to do illegal acts • Murder • Theft

8. Characteristics of a contract

9. 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)

10. 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)

11. 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.

12. 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

13. Unilateral Contract • Contains one promise only • One person promises to do soemthingIF AND EWHEN THE OTHER PERSON PERFORMS SOME ACT. • A Promise for an Act.

14. What kind of contract is this?Unilateral or Bilateral? I’ll sell you my pizza for $7.50 I will buy it!!

15. What kind of contract is this---- unilateral or bilateral? Will you help me kidnap my son? Yes I will.

16. 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!!

17. Oral Contracts • Created by word of mouth. • Most contracts are oral.

18. Written Contracts • Good idea to get things in writing. • Everybody knows the exact terms of the contract and can prove the agreement was made.

19. 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.

20. Requirements of an offer • It must be seriously intended. • It must be definite and certain. • It must be communicated to the offeree.

21. 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)

22. 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

23. 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

24. Requirements of an acceptance • Acceptance = unqualified willingness to go along with the offer.

25. 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

26. Uniform commercial code (ucc) • Contracts for sale of goods are exceptions to the mirror image rule. • Read the 2 paragraphs on pg. 98.

27. 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

28. 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.

29. Rejection • Offeree rejects the offer • Example: I don’t want to buy your dog.

30. Counteroffer • A counteroffer ends the first offer.

31. 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.

32. 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.