How Contracts Arise Chapter 5 Business Law. Essential Questions Explain the elements of legal contracts. What are the differences among valid, void, voidable.

How Contracts Arise

Chapter 5

Business Law

Essential Questions

• Explain the elements of legal contracts.

• What are the differences among valid, void, voidable and uneforceable contracts?

• What are the differences between unilateral and bilateral contracts?

• What are the differences between express and implied contracts?

Contracts• Contract:

– Any agreement enforceable by law

• The Three Theories of Contract Law:– Equity Theory:

• Parties exchanged things of equal value

– Will Theory:• Parties agreed to the terms set forth

– Free-Will

– Formalist Theory:• “Meeting of the minds”

• The Elements of a Contract:1. Offer:

• A proposal by one party to another intended to create a legally binding agreement

2. Acceptance:• The second party’s unqualified willingness to go

along with the first party’s proposal– Genuine Agreement: Offer and Acceptance

3. Capacity:• The legal ability to enter a contract

4. Consideration: • The exchange of things of value

5. Legality: • People cannot enter into contracts to commit

illegal acts

Characteristics of a Contract

• Valid, void, voidable, or unenforceable

• Express or implied

• Bilateral or unilateral

• Oral or written

Valid, Void, Voidable, or Unenforceable

• Valid:– Legally good

• Void:– No legal effect

• Voidable Contract:– When a party to a contract is able to void or

cancel the contract

• Unenforceable Contract:– One the court will not uphold

Express or Implied

• Express Contract:– Stated in words and may be either oral or

written

• Implied Contract:– Actions of the parties

• Getting gas

Bilateral or Unilateral

• Bilateral Contract:– Contains two promises

• Exchange for doing something

• Unilateral Contract:– Contains a promise by only one person to do

somethingOffer

Promise by offeror

Agreement AcceptanceAct performed by offeree at

offeror’s request

Unilateral Contract

Offer

Promise by offeror

Agreement AcceptancePromise made by offeree at

offeror’s request

Unilateral ContractBilateral Contract

Oral or Written

• Oral Contract:– When two or more people form a contract by

speaking to each other

• Written Contract:– Assures that both parties know the exact

terms of the contract and also provides proof that the agreement was made

Offer and Acceptance

• Offeror:– Makes the offer

• Offeree:– Receives the offer

• Three Basic Requirements:1. Made seriously2. Definite and certain3. Communicated to the offeree

Serious Intent

• If A.B. was having a bad with his car and said, “Hey J.B., give me five bucks and it’s yours”, does this hold up in court?

• Invitations to Negotiate:– Most advertisements in newspapers,

magazines, and catalogs

Definiteness and Certainty

• If Shane borrows Jeffs IPod and says I will pay part of the price if I can use this for a week. Does this hold up in court?– No, must be definite, part is not

Communication to the Offeree

• Offers may be made by telephone, letter, telegram, fax machine, e-mail, or by any other method that communicates the offer to the offeree

Requirements of an Acceptance

• Unconditional Acceptance:– Must not change the terms of the original offer

in any way• The mirror image rule:

• Counteroffer:– Any change in the terms of the offer

• House, Car, etc.

• Methods of Acceptance:– According to common law an acceptance that

must be sent over long distances is effective when it is sent

Termination of an Offer

• Revocation:– Taking back of an offer by the offeror

• Before it has been accepted

• Rejection:– Refusal of an offer by the offeree brings the

offer to an end

• Counteroffer:– Ends the first offer

• Expiration of Time:– A set time or deadline for the acceptance

must be honored• Reasonable time

• Death or Insanity:– If the offeror dies or becomes insane before

the offer is accepted, the offer comes to an end