1. © 2011 South-Western | Cengage Learning GOALS LESSON 2.1 CONTRACT LAW BASICS Name the six essential elements of a legally enforceable contract Identify ways to classify contracts

2. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 2 2.1 What is a Contract? A contract is an agreement between two or more parties that creates an obligation.

3. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 3 2.1 Elements of a Legally Enforceable Contract 1.Agreement comprised of an offer and an acceptance 2.Supported by consideration 3.Made by parties with capacity to contract 4.Genuinely assented to 5.For a legal purpose 6.In writing when required

4. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 4 2.1 Terms for Understanding Contracts Express, implied, and quasi contracts Valid, voidable, and void contracts Executed and executory contracts Unilateral and bilateral contracts

5. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 5 2.1 Express, Implied, and Quasi Contracts The terms of an express contract are set down in a clear-cut fashion, either orally or in writing. The terms of an implied contract are not stated; they are determined from the surrounding circumstances or an established pattern of dealings. A quasi contract is best viewed as a remedy that the courts utilize to return value to someone who has enriched another person in the absence of an express or implied contact between them.

6. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 6 2.1 Valid, Voidable, and Void Contracts A valid contract is one that is legally binding and enforceable. A voidable contract is a contract whose legal effect can be cancelled by one or more of the parties to it. A void contract is one that has no legal effect whatsoever.

7. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 7 2.1 Executed and Executory Contracts An executed contract is one that all parties have fully performed. An executory contract is one in which some performance has yet to be delivered.

8. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 8 2.1 Unilateral and Bilateral Contracts A bilateral contract is one that obligates all parties to it to perform according to their promises. A unilateral contract is one in which one party may be obligated to fulfill a contractual promise and then only if another party performs.

9. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 9 2.1 Other Contractual Terms An offer is a proposal of a bargain or exchange to another party or parties. The person making the offer is termed the offeror. The person to whom it is made is termed the offeree. The promisor is the maker of a promise. The promisee is the person to whom the promise is made. The obligor is the person who must fulfill an obligation. The obligee is the person to whom the obligor is obligated.

10. © 2011 South-Western | Cengage Learning GOALS LESSON 2.2 OFFER AND ACCEPTANCE Explain how to create a valid offer Describe the various ways an offer can be terminated before acceptance Recognize the importance of acceptance and consideration to contract formation

11. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 11 2.2 The Offer Generally, to create a valid offer the following must occur: 1. 1.The offeror must appear to intend to create a legal obligation. 2. 2.The terms must be complete and definite. 3. 3.The offer must be communicated to the offeree.

12. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 12 2.2 Intent to Create a Legal Obligation Test of the reasonable observer Invitations to negotiate

13. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 13 2.2 Offer Must Be Complete If an offer is missing essential information, it is incomplete and legally ineffective. Nearly all offers must identify the price, subject matter, and quantity, either directly or indirectly. The amount of essential information to include depends upon the complexity of the transaction.

14. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 14 2.2 Offer Must Be Definite Each essential term must be identified clearly in order for the courts to enforce an agreement. In some contracts, however, a term might be implied by law or common business practice.

15. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 15 2.2 Offer Must Be Communicated to the Offeree A person who is not the intended offeree cannot accept the offer. Nor can a person accept an offer without knowing it has been made.

16. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 16 2.2 Possible Termination of the Offer before Acceptance Revocation Expiration of a set period or a reasonable time Rejection by the offeree Counteroffers Other circumstances

17. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 17 2.2 Acceptance and Consideration An acceptance is the agreement by an offeree to the terms of the offer. Consideration is what the offeror demands, and generally must receive, in order to make the offer legally enforceable.

18. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 18 2.2 Three Requirements of Consideration 1. 1.It must at least entail the making of a promise, performance of an act, or a forbearance from acting. 2. 2.Each party’s consideration must be in exchange for consideration given by the other party. 3. 3.What each party exchanges must have legal value; that is, it must be worth something in the eyes of the law.

19. © 2011 South-Western | Cengage Learning GOALS LESSON 2.3 CAPACITY TO CONTRACT Determine if someone has the capacity to contract Identify when apparent assent to a contract is not genuine

20. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 20 2.3 Capacity to Contract Contractual capacity is the ability to understand the consequences of a contract. The law does not require the actual understanding, just “the ability to understand.”

21. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 21 2.3 Lack of Contractual Capacity Minors Mental incapacity Intoxication

22. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 22 2.3 Lack of Genuine Assent Mistake Concealment Misrepresentation and fraud Undue influence and duress Unconscionability

23. © 2011 South-Western | Cengage Learning GOALS LESSON 2.4 LEGALITY OF CONTRACTS Identify contracts that are illegal Recognize when a writing is required to prove a contract

24. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 24 2.4 Legality of Contracts Four basic indicators to tell when a contract is unenforceable due to problems with legality: Statutes sometimes explicitly state that certain contracts are unenforceable. Courts look at the impact on public welfare of a violation of a statute related to the contract. Courts look at how directly the contract and the violation of the statute are connected. Courts look at how involved the parties are in the violation of a statute.

25. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 25 2.4 Illegal Contracts Illegal gambling Usurious interest Illegal discrimination Obstruction of legal procedures Lack of required competency license Negative effects on marriage Unreasonable restraint of trade

26. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 26 2.4 Unreasonable Restraint of Trade Price fixing Resale price maintenance Allocation of markets Covenants not to compete

27. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 27 2.4 When a Written Contract Is Required The law in most states identifies distinct situations in which, should one party to such a contract deny its existence, a written contract signed by that party is required to enforce the contract. Typically, a law called the statute of frauds specifies the situations that require a writing.

28. © 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 28 2.4 Situations that Require a Written Contract 1. 1. When a right or interest in real property is being transferred. 2. 2. When the contract cannot be performed within a year. 3. 3. When a sale of goods valued at more than $500 is involved. 4. 4. When someone makes a promise to a creditor to stand good for the debts of another. 5. 5. When someone in charge of an estate makes a promise to stand good for the estate’s debts. 6. 6. When promises other than the exchange of the traditional vows are given in consideration of marriage.