1. Bell Ringer What should a contract be based on? What things should be included in a contract? What things could make a contract no longer applicable?

2. Bell Ringer What are the six parts of a contract? What is Equality theory when referring to contracts? What does it mean if a contract is void?

3. Bell Ringer What is a an implied contract? What is serious intent? Why would death or insanity make a contract void?

4. CH 5: Entering into Contracts

5. What is a contract? Most people think of contracts as preprinted, formal legal documents that relate to only important things (buying cars, new job, etc) You enter into a contract any time your agree to exchange things of value A contract is an agreement enforceable by law.

6. Three Theories of Contracts: Equality Theory Equality theory: Whether the parties exchanged things of equal value – Was used primarily in the past – Was phased out as industrialization and capitalism became more prominent

7. Three Theories of Contracts: Will Theory Will Theory: Whether the parties had agreed to terms set forth in a contract – Called the will theory because each part has free will – Courts no longer looked at if the contract was fair, but if each party agree to the terms of their own volition – The Will Theory is hard to prove as it is almost impossible to prove what a person is thinking at any given moment

8. Three Theories of Contracts: Formalist Agreement Since Will Theory proved inadequate courts started to look for specific actions/parts to a contract – The court tried to determine if it seemed like the two parties had collaborate on the contract – This would led to specific fixed elements that appear in all contracts – If these elements were present, courts acknowledge the existence of a contract.

9. Elements of a Contract As stated in formalist theory courts are looking for fixed specific parts of an agreement. If these parts are present in an agreement the courts acknowledge something was a contract Without all six elements an agreement is not a contract There are SIX elements of a contract courts look for: offer, acceptance, genuine agreement, consideration, capacity, legality

10. Offer: A proposal by one party (offeror) to another (offeree) intended to create legally binding agreement Acceptance: The Agreement of the offeree to be bound by the terms of the offer

11. Genuine Agreement: The offer and acceptance combine together to form a genuine agreement. – A Genuine Agreement can be destroyed by fraud, misrepresentation, mistake, duress, or undue influence

12. Consideration: The thing of value promised to one party in contract in exchange for something else of value promised by the other party. – The mutual exchange binds the parties together

13. Capacity: The law presumes anyone entering into a contract can legally do so – Contracts can be invalidated if a party involved is too young, mentally incompetent, drugged, drunk, etc Legality: Parties are not allowed to enforce contracts that involve illegal activities.

14. Characteristics of a Contract Once a contract has been entered it can be described in numerous ways, and take on numerous forms – Valid, void, voidable, or unenforceable – Express or implied – Bilateral or unilateral – Oral or written

15. Valid, Void, Voidable, or Unenforceable Valid: legally good (legally binding) Void: no longer legal – If a contract is missing one element, it can be void

16. Voidable Contract: when a party to a contract is able to void or cancel the contract for some legal reason Unenforceable Contract: a contract that the court will not uphold, generally because of some rule of law, such as the statue of limitations

17. Express vs Implied Contract Express Contract: stated in words and may be either oral or written Implied Contract: come from the actions of the parties – Pumping gas: By pumping your own gas you enter an implied contract you will PAY FOR THE GAS!!!

18. Bilateral vs Unilateral Bilateral Contract: Contains two contracts. One party promises to do something in exchange from another’s promise to do something else Unilateral Contract: contains a promise by only one person to do something, if and when the other party performs some action.

20. Oral vs Written Oral Contract: when a contract is formed by word of mouth and comes about by two people speaking to each other Written Contract: a written contract assures that both parties know the exact terms of the contract and providing proof of the agreement

21. Requirements of an Offer An offer had three basic requirements – Made Seriously – Definite and certain – Communicated to the offeree Serious Intent: an offer must be made with the intent of entering into a legal obligation – Therefore, saying “If you hit this shot I will give you $10,000” is NOT actually legally binding.

22. Definiteness and Certainty: must be definite (not vague) and certain in order to be enforceable. – A landlord agrees to pay “a share” of the repair cost if the tenant fixes the damages caused by the hurricane. – A court will not enforce this contract as “a share” is not definite or certain. Had the landlord agreed to pay 50% of the repair costs then the court would have enforced the contract

23. Communication to the Offeree: by telephone, letter, fax, email, text, etc – You find a dog along side the road and check it for owner information. – You find the owner and return the dog, and they are very grateful – You later see in the newspaper that the owners had been offering a reward for the return of the dog. – You didn’t collect the reward because it was not communicated to you

24. Requirements of an Acceptance Unconditional Acceptance: must not change the terms of the original offer – This is known as the mirror image rule Any change in terms is a counteroffer; the original offeror is not obligated to go along with the counteroffer and no contract results.

25. Exclusions include the sale of goods where minor changes can be made. – New or different terms do not make a material or crucial difference to the nature of the contract – The offeror does not object to the new or different terms within a reasonable time – The original offer did not expressly limit acceptance to the terms in that original offer.

26. Methods of Acceptance Methods of Acceptance: time of acceptance determines when the contract comes into existence. When the offeree uses the same method of communication as the offeror, the contract exists when the acceptance is agreed to – Talking in person or on the phone = no special conditions

27. If the offeree uses a method of communication that is different (or over long distance) from that used by the offeror, the contract exists when the acceptance is sent. – A contract offer is sent in the mail, an acceptance is mailed back. The contract starts at the mailed back phase Common law also states that acceptance is agreed upon if the offeree uses the same or faster communication than the offeror – An offer is sent by mail, the offeree calls the offeror and accepts the job by phone Any minor error: wrong address, misspelt name, wrong pay scale, will postpone official acceptance.

28. Catch-22 Lets say an offeror sends a contract that states “if you do not respond I will take this as your acceptance of my offer.” If the offeree never responds they will not be legally obligated to honor the contract. A Non-response is not determined acceptance, and therefore a legal contract is never made

29. Termination of an Offer Even if a contract has been properly offered to an offeree it can still be terminated in five ways: – Revocation: taking back of the offer before it is accepted (must be communicated to the offeree). – Rejection: refusal of an offer by the offeree

30. Counteroffer: ends the first offer (rejects original offer) Expiration of Time: offer must be complied with in the time limit (if one exists) – An option is a binding promise to hold an offer open for a specified period of time (can be accompanied by money). Death or Insanity: if the offeror dies or becomes insane before it is accepted, the offer comes to an end.