ENTERING INTO CONTRACTS Sunny Hills High School Business Law Mrs. Larsen.
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Transcript of ENTERING INTO CONTRACTS Sunny Hills High School Business Law Mrs. Larsen.
ENTERING INTO ENTERING INTO CONTRACTSCONTRACTS
Sunny Hills High Sunny Hills High SchoolSchool
Business LawBusiness LawMrs. LarsenMrs. Larsen
Chapter 7Chapter 7
HOW CONTRACTS HOW CONTRACTS ARISEARISE
PAGE 91PAGE 91
Learning ObjectivesLearning Objectives
Six Elements of a ContractSix Elements of a Contract Major Classes of Contracts with Major Classes of Contracts with
ExplanationExplanation Three Basic Elements of an OfferThree Basic Elements of an Offer Requirements of an AcceptanceRequirements of an Acceptance How an Offer can come to an ENDHow an Offer can come to an END
Contract LawContract Law
Enforces promisesEnforces promises Gives reasonable assurances Gives reasonable assurances
to all partiesto all parties Provides remedies for failure Provides remedies for failure
to keep promisesto keep promises
Contracts Contracts
written or oralwritten or oraloral contracts are more oral contracts are more
difficult to prove difficult to prove in most jurisdictions the time to in most jurisdictions the time to sue on the contract is shorter sue on the contract is shorter such as two years for oral such as two years for oral compared to four years for compared to four years for written written
Contract isContract is
an agreement with specific terms an agreement with specific terms between two or more persons or entitiesbetween two or more persons or entities with a promisewith a promise considerationconsideration
heart of most business dealingsheart of most business dealings legal concerns are legal concerns are
variations on circumstances and variations on circumstances and complexitiescomplexities
enter into an agreemententer into an agreement
Elements of a ContractElements of a Contract
There are six elementsThere are six elements Have all elements to be Have all elements to be
enforceableenforceable Writing is not oneWriting is not one
1.1. OfferOffer
• Proposal by one party Proposal by one party (Offeree)(Offeree)
• To another Party (Offeror)To another Party (Offeror)• Showing a willingnessShowing a willingness• To create a legally binding To create a legally binding
contractcontract
2 Acceptance2 Acceptance
Unqualified willingness to go Unqualified willingness to go along with the offeralong with the offer
Agreement to be bound by Agreement to be bound by the terms of the offerthe terms of the offer
3.Genuine Agreement3.Genuine Agreement
Valid offer is met by a valid Valid offer is met by a valid acceptanceacceptance
a meeting of the mindsa meeting of the minds Genuine—no fraud or Genuine—no fraud or
misrepresentationmisrepresentation
4. Capacity4. Capacity
Legal ability to enter a Legal ability to enter a contractcontract
Issues: minor, mental Issues: minor, mental competence, mental statecompetence, mental state
5. Consideration5. Consideration
Exchange of things of value Exchange of things of value Mutual Exchange creates the Mutual Exchange creates the
bondbond Between the contractual Between the contractual
partiesparties
6. Legality6. Legality
To be enforceable must be To be enforceable must be for a legal act or purposefor a legal act or purpose
Characteristics of a Characteristics of a ContractContract
one or more of these four groupsone or more of these four groups For Example: Valid, Express, For Example: Valid, Express,
Bilateral and WrittenBilateral and Written1.1. Valid, Void, Voidable, UnenforceableValid, Void, Voidable, Unenforceable
2.2. Express or ImpliedExpress or Implied
3.3. Bilateral or unilateralBilateral or unilateral
4.4. Oral or WrittenOral or Written
Valid, Void, Voidable, Valid, Void, Voidable, UnenforceableUnenforceable
Valid is legally good or bindingValid is legally good or binding Void is No legal forceVoid is No legal force
Not a contractNot a contract Can be cancelledCan be cancelled Example: Minor as a partyExample: Minor as a party
Voidable: One party can cancelVoidable: One party can cancel Unenforceable is not supported by lawUnenforceable is not supported by law
not words of partiesnot words of parties Example: Statue of Limitations has run Example: Statue of Limitations has run
outout
Express or ImpliedExpress or Implied
ExpressExpress: : stated in words, oral or writtenstated in words, oral or written
ImpliedImplied: : comes from the actionscomes from the actions
Bilateral, UnilateralBilateral, Unilateral
A A bilateral contractbilateral contract is a is a promise exchanged for a promise exchanged for a promise. 2 promisespromise. 2 promises (I promise to fix your car by (I promise to fix your car by
Thursday and you promise to Thursday and you promise to pay $500 on Thursday.) pay $500 on Thursday.)
UnilateralUnilateral
A A unilateral contractunilateral contract is a is a promise to give consideration promise to give consideration in return for actual in return for actual performance. One promise.performance. One promise. (I will pay you $500 to fix my (I will pay you $500 to fix my
car by Thursday; the car by Thursday; the performance is fixing the car by performance is fixing the car by that date.)that date.)
Oral, WrittenOral, Written
Oral ContractOral ContractCreated by word of mouthCreated by word of mouth2 or more people speak to each 2 or more people speak to each
otherother Written ContractWritten Contract
Words and terms are put into Words and terms are put into writing writing
for clarity and prooffor clarity and proof
REQUIREMENTS OF AN REQUIREMENTS OF AN OFFEROFFER
Offer is a proposal by one party Offer is a proposal by one party to another to enter into a to another to enter into a contractcontract
Three requirementsThree requirementsSeriously intendedSeriously intendedDefinite and certainDefinite and certainCommunicated to the offeree by Communicated to the offeree by
the offerorthe offeror
Serious IntentSerious Intent
Offers must have serious intentOffers must have serious intent Must be made with legal Must be made with legal
obligation in mindobligation in mind Invitation to NegotiateInvitation to Negotiate
Advertisements are treated as Advertisements are treated as invitations, not offersinvitations, not offers
Price devices are invitations to Price devices are invitations to tradetrade
Definiteness and Definiteness and CertaintyCertainty
Offer must be definite and Offer must be definite and certaincertain
Amounts must be specifiedAmounts must be specified
Communication to the Communication to the OffereeOfferee
Many waysMany waysTelephone, letter, telegram, Telephone, letter, telegram,
fax, email, otherfax, email, other Given directly to the OffereeGiven directly to the Offeree
REQUIREMENTS OF AN REQUIREMENTS OF AN ACEPTANCEACEPTANCE
Acceptance isAcceptance isUnqualified willingness to go Unqualified willingness to go
along with the offeralong with the offer Requirements areRequirements are
Unconditional acceptanceUnconditional acceptanceMethod of acceptance follows Method of acceptance follows
the rulesthe rules
Unconditional Unconditional AcceptanceAcceptance
Mirror Image RuleMirror Image Rule Acceptance does not change the Acceptance does not change the
original offeroriginal offer Counter Offer: Any change to originalCounter Offer: Any change to original
Exceptions:Exceptions: UCC:UCC: Uniform Commercial Code Uniform Commercial Code
Not a merchant, thus not an expertNot a merchant, thus not an expert Sale of goodsSale of goods: small changes to : small changes to
original offeroriginal offer
METHODS OF METHODS OF ACCEPTANCEACCEPTANCE
At the TIME the At the TIME the acceptance is sentacceptance is sent,,
the contract is createdthe contract is created Face-to-Face, TelephoneFace-to-Face, Telephone Same method of communicationSame method of communication
At the TIME the At the TIME the acceptance is receivedacceptance is received,,
the contract is createdthe contract is created Letters, telegrams, fax machinesLetters, telegrams, fax machines Great distancesGreat distances
MORE METHODS OF MORE METHODS OF ACCEPTANCEACCEPTANCE
Offer or CounterofferOffer or Counteroffercan specify a time and place can specify a time and place for contract to take effectfor contract to take effect
ACTIONACTIONContract is in effect when Contract is in effect when action occursaction occurs
Condition of SilenceCondition of SilenceNot an acceptanceNot an acceptance
Termination of an OfferTermination of an Offer
RevocationRevocation RejectionRejection CounterofferCounteroffer Expiration of timeExpiration of time Death or SanityDeath or Sanity
Revocation (to revoke)Revocation (to revoke)
Change of mind or Change of mind or circumstancescircumstances
2 Rules2 RulesRevoked before acceptedRevoked before acceptedWhen offer is acceptedWhen offer is accepted
Rejection (to refuse)Rejection (to refuse)
Ends the offerEnds the offerOffer is not acceptedOffer is not accepted
CounterofferCounteroffer
Ends the first offerEnds the first offerCreates a new offer to the Creates a new offer to the
original offereroriginal offerer
Expiration of timeExpiration of time
Time limit must be complied withTime limit must be complied with No time stated, must be No time stated, must be
reasonable timereasonable time Deposit of Money creates an Deposit of Money creates an
option contractoption contractOption is a binding promise for Option is a binding promise for specified period of timespecified period of time
Provides exclusive rights to offerProvides exclusive rights to offer
Death or SanityDeath or Sanity
Death or insanity of offeror Death or insanity of offeror before acceptancebefore acceptance
Offer ends.Offer ends. Death ends an OFFER not a Death ends an OFFER not a
CONRACTCONRACT
In some cases In some cases
a contract can consist of a contract can consist of several documentsseveral documents a series of letters, orders, a series of letters, orders,
offers and counteroffers. offers and counteroffers.
There are a variety of types There are a variety of types of contracts: of contracts:
"conditional" "conditional" on an event occurring; on an event occurring;
"joint and several,“"joint and several,“ in which several parties make a joint in which several parties make a joint
promise to perform, but each is promise to perform, but each is responsible; responsible;
"implied,“"implied,“ in which the courts will determine in which the courts will determine
there is a contract based on the there is a contract based on the circumstances.circumstances.