How Contracts Arise Chapter 5 Business Law

Essential Questions Explain the elements of legal contracts. What are the differences among valid, void, voidable and uneforceable contracts? What are the differences between unilateral and bilateral contracts? What are the differences between express and implied contracts?

Contracts Contract: The Three Theories of Contract Law: Any agreement enforceable by law The Three Theories of Contract Law: Equity Theory: Parties exchanged things of equal value Will Theory: Parties agreed to the terms set forth Free-Will Formalist Theory: “Meeting of the minds”

The Elements of a Contract: Offer: A proposal by one party to another intended to create a legally binding agreement Acceptance: The second party’s unqualified willingness to go along with the first party’s proposal Genuine Agreement: Offer and Acceptance

First Party Second Party Capacity: Consideration: Legality: The legal ability to enter a contract Consideration: The exchange of things of value Legality: People cannot enter into contracts to commit illegal acts Second Party

Characteristics of a Contract Valid, void, voidable, or unenforceable Express or implied Bilateral or unilateral Oral or written

Valid, Void, Voidable, or Unenforceable Legally good Void: No legal effect Voidable Contract: When a party to a contract is able to void or cancel the contract Unenforceable Contract: One the court will not uphold

Express or Implied Express Contract: Implied Contract: Stated in words and may be either oral or written Implied Contract: Actions of the parties Getting gas

Bilateral or Unilateral Bilateral Contract: Contains two promises Exchange for doing something Unilateral Contract: Contains a promise by only one person to do something Offer Promise by offeror Agreement Acceptance Promise made by offeree at offeror’s request Unilateral Contract Bilateral Contract Offer Promise by offeror Agreement Acceptance Act performed by offeree at offeror’s request Unilateral Contract

Oral or Written Oral Contract: Written Contract: When two or more people form a contract by speaking to each other Written Contract: Assures that both parties know the exact terms of the contract and also provides proof that the agreement was made

Offer and Acceptance Offeror: Offeree: Three Basic Requirements: Makes the offer Offeree: Receives the offer Three Basic Requirements: Made seriously Definite and certain Communicated to the offeree

Serious Intent If A.B. was having a bad with his car and said, “Hey J.B., give me five bucks and it’s yours”, does this hold up in court? Invitations to Negotiate: Most advertisements in newspapers, magazines, and catalogs

Definiteness and Certainty If Shane borrows Jeffs IPod and says I will pay part of the price if I can use this for a week. Does this hold up in court? No, must be definite, part is not

Communication to the Offeree Offers may be made by telephone, letter, telegram, fax machine, e-mail, or by any other method that communicates the offer to the offeree

Requirements of an Acceptance Unconditional Acceptance: Must not change the terms of the original offer in any way The mirror image rule: Counteroffer: Any change in the terms of the offer House, Car, etc.

C A B Methods of Acceptance: According to common law an acceptance that must be sent over long distances is effective when it is sent C A B

Termination of an Offer Revocation: Taking back of an offer by the offeror Before it has been accepted Rejection: Refusal of an offer by the offeree brings the offer to an end Counteroffer: Ends the first offer

Expiration of Time: Death or Insanity: A set time or deadline for the acceptance must be honored Reasonable time Death or Insanity: If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end