1. 18.1 – ELEMENTS OF CONTRACTS Union Study

2. Classifying Contracts  A contract is… …a legally binding agreement between two or more competent parties  A bilateral contract is… …an agreement by both parties to do something for each other. most contracts are bilateral contracts can contain numerous terms – things that parties must do or not do for one another

3. Classifying Contracts (continued)  An oral contract is… …a verbal agreement made between two or more parties may be difficult to enforce – why?  A written contract is… …an agreement between two or more parties in which the terms are set out on paper or by Internet communications ADV - provides clear evidence of contract

4. Classifying Contracts (continued)  An implied contract is… …an agreement in which the parties indicate consensus through their conduct Eg. paying for a ride on public transit  An express contract is… …an agreement in which the terms have been discussed and agreed upon in advance  A contract under seal is… …a written agreement bearing a red sticker, handwritten dot, or the word seal also called a ‘deed’

5. Elements of a Contract  for a contract to exist, there must be consensus ad idem  consensus ad idem is… …a clear understanding between the parties of the terms of the contract and the willingness to abide by them  three elements must exist for a contract to exist: offer acceptance consideration

6. Offer (continued)  An offer is… …a proposal to another party to enter into an agreement on certain terms An offeror is…  …a person who makes an offer An offeree is…  …a person who receives an offer

7. Offer (continued)  making a valid offer In order to be valid, an offer must be made seriously and its terms must be certain.  An invitation to treat is… …a communication intended to elicit offers from the person who receive it Eg. – placing a ‘For Sale’ sign on window of your car is not an offer, but an invitation to treat

8. Offer (continued)  communicating an offer communicating may happen in a variety of forms (mail, courier, fax, email, and in person) it’s important to know when offeree became aware of offer OR even if offeree was aware of offer at all

9. Offer (continued)  ending an offer offers don’t live forever – they may end in a variety of ways A lapse is…  …when a contract is terminated or ceases to exist  an offer lapses if it’s not accepted before the date set out in the offer A contract is revoked…  …when the offeror withdraws the offer before it’s accepted by the offeree

10. Offer (continued)  ending an offer (continued)  A counteroffer is… …when an offer is made in response to an existing offer counteroffer nullifies the first offer – now a second offer (the counteroffer) is waiting for acceptance

11. Acceptance  Acceptance is… …a clear indication by the offeree to enter into a contract on the terms set out by the offeror acceptance is usually made in the following ways:  orally  in writing  by conduct acceptance occurs once offeree has communicated acceptance

12. Acceptance (continued)  How acceptance can be made and communicated: 1. acceptance of an offer is usually required to be active Ie. ‘not’ doing something is not acceptance 2. contract is formed when the offeror receives notice of acceptance from the offeree 3. acceptance must be made in a reasonable manner, or in the form required by the offeror acceptance form usually in the form used in the presentation of the offer

13. Acceptance (continued)  How acceptance can be made and communicated (continued): 4. when the offeror has expressly required acceptance by mail, or it is clear that the mail may be used, acceptance is completed as soon as the letter is mailed, even if the offeror never receives the letter offeree must get receipt for proof of mailing 5. an offer cannot be accepted if the offeree knows it has been revoked by the offeror  A unilateral contract is…  …a contract formed when the offeree accepts an offer by performing an act requested by the offeror  no communication of acceptance is required here

14. Consideration  an agreement is an enforceable contract only if parties exchange benefits  consideration is… …something of value that either benefits the party who receives it or is a loss or inconvenience to the party who provides it examples of consideration is often $$, but it could be anything of value – even not doing something you usually do

15. Consideration (continued)  gratuitous promises a gratuitous promise is…  an offer that gives a benefit to the offeree only gratuitous promises are not typically enforceable contracts  valid consideration not all forms of consideration are valid present consideration is…  …something of value that is exchanged at the time a contract is formed

16. Consideration (continued)  valid consideration (continued) future consideration is…  …something of value that is exchanged after a contract is formed  invalid consideration past consideration is…  …a benefit conferred before a contract is alleged to have been formed