1. Chapter 7 – How Contracts Arise
Personal and Business Law
Mr. Ulmer Rm. 112

2. Definition
Contract – is any agreement enforceable at law

3. Elements of a Contract Offer Acceptance Genuine Agreement
Consideration
Capacity
Legality
-Figure 7-1 (p. 93)

4. Offer
A proposal made by one party (the offeror) to another party (the offeree) indicating a willingness to enter a contract
Example: “I will give you $100 to wear this t-shirt all day at work.”

5. Acceptance
The agreement of the offeree to be bound by the terms of the offer
Example: “I accept the offer. I will wear the t-shirt all day while I am at work.”

6. Genuine Agreement
Offer and acceptance go together to create genuine agreement, or a meeting of the minds
Agreement can be destroyed by:
Fraud
Misrepresentation
Mistake
Duress
Undue influence

7. Consideration
The thing of value promised to the other party in a contract in exchange for something else of value promised by the other party
Mutual exchange binds the parties together

8. Capacity
The law presumes that anyone entering a contract has the legal capacity to do so
People excused from contractual responsibility may include:
Minors
Mentally incompetent individuals
Drugged or drunk individuals

9. Legality
Parties are not allowed to enforce contracts that involve doing something that is illegal
Some illegal contracts involve agreement to commit a crime or tort
Others involve activities made illegal by statutory law

10. Importance of Elements
To be legally complete, a contract must include these six elements.
What if one of the elements is missing?
A valid contract does not exist

11. Characteristics of Contracts
4 Categories of Contracts
Valid, void, voidable, or unenforceable
Express or implied
Bilateral or unilateral
Oral or written
Any one contract may have 1 or more of these 4 categories

12. Valid, Void, and Voidable
Valid – means legally good, which is legally binding
Void – means no legal force, which has no legal effect whatsoever
Voidable – When a party is able to void or cancel a contract for some legal reason, a contract is “voidable”

13. Unenforceable
Some rule of law that cannot enforce the contract in court.
Statute of Limitations
Example 1 (p. 94)

14. Express, Implied
An express contract is stated in words and may be either oral or written.
An implied contract is one that comes about from the actions of the parties.
Example 2 (p. 94)

15. Bilateral, Unilateral
Bilateral – is a contract that contains two promises – one from each person.
Lloyd: “I will sell you my PS4 for $300”
Harry: “I will buy it”
Unilateral – One promise only. One person promises to do something in exchange for the other person’s promise to do something.

16. Oral, Written
Oral contract is created by word of mouth. Must be at least two people speaking for contract to come into existence
Written contract is desirable since it allowed the parties to know the exact terms of the contract and provide proof agreement was made.

17. Requirements of an Offer
An Offer’s Three Basic Requirements:
1) It must be seriously intended
2) It must be definite and certain
3) Must be communicated to the offeree

18. Requirements of an Acceptance
The unqualified willingness to go along with the offer
Basic Requirements for an Acceptance:
Unconditional Acceptance
Methods of Acceptance

19. Termination of an Offer
Revocation – the taking back of an offer by the offeror
Rejection – rejection or refusal of an offer by the offeree
Counteroffer – Any change in the terms of the offer by the offeree

20. Termination of an Offer
Expiration of Time
If offeror puts a time limit for the acceptance of an offer, the offer may be terminated
Death or Insanity
If offeror dies or becomes insane before offer is accepted, the offer comes to an end