1. U NIT 2 C HAPTER 7 How Contracts Arise

2. E LEMENTS OF A C ONTRACT Contract= an agreement enforceable by law. Contracts have 6 elements: (don’t write this) Offer Acceptance Genuine Agreement Consideration Capacity Legality

3. E LEMENTS OF A CONTRACT C ONT. 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. H OW TO DESTROY GENUINE AGREEMENT …. Fraud Misrepresentation Undue Influence

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

6. C ONSIDERATION 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. L EGALITY People cannot agree to do illegal acts Murder Theft

8. C HARACTERISTICS OF A CONTRACT Valid, Void, voidable or uneforceable Bilateral or unilateral Express or impliedOral or written

9. V ALID, 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. V ALID, V OID, V OIDABLE, 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. E XPRESS, 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. B ILATERAL C ONTRACT 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. U NILATERAL C ONTRACT Contains one promise only One person promises to do soemthing IF AND EWHEN THE OTHER PERSON PERFORMS SOME ACT. A Promise for an Act.

14. W HAT KIND OF CONTRACT IS THIS ? U NILATERAL OR B ILATERAL ? I’ll sell you my pizza for $7.50 I will buy it!!

15. W HAT KIND OF CONTRACT IS THIS ---- UNILATERAL OR BILATERAL ? Will you help me kidnap my son? Yes I will.

16. W HAT 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. O RAL C ONTRACTS Created by word of mouth. Most contracts are oral.

18. W RITTEN C ONTRACTS Good idea to get things in writing. Everybody knows the exact terms of the contract and can prove the agreement was made.

19. R EQUIREMENTS OF AN O FFER 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. R EQUIREMENTS OF AN OFFER It must be seriously intended. It must be definite and certain. It must be communicated to the offeree.

21. S ERIOUS I NTENT 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. D EFINITENESS AND C ERTAINTY 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. C OMMUNICATION 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. R EQUIREMENTS OF AN ACCEPTANCE Acceptance = unqualified willingness to go along with the offer.

25. U NCONDITIONAL A CCEPTANCE 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. U NIFORM COMMERCIAL CODE ( UCC ) Contracts for sale of goods are exceptions to the mirror image rule. Read the 2 paragraphs on pg. 98.

27. M ETHODS OF A CCEPTANCE 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. T ERMINATION 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. R EJECTION Offeree rejects the offer Example: I don’t want to buy your dog.

30. C OUNTEROFFER A counteroffer ends the first offer.

31. E XPIRATION OF T IME 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. D EATH OR I NSANITY 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.