2 What is a contract?A contract is an agreement between 2 or more people to exchange something of value.ExamplesCell phoneHiring someone to work on your houseHiring a tutor for schoolOrdering food at a resturant
3 Elements of a ContractAll 4 elements are required for a valid contractOffer – I will buy your bike for $20Acceptance – OkayMutual Agreement – both parties agree to everything about the contractConsideration – something of value is exchanged
4 Does a contract have to be in writing? Most do not, however, having a paper document is better in case of future legal actions. (paper is proof)Contracts that have to be in writingSale of real estateAgreements to pay someone else’s debtAgreements lasting longer than 1 year
5 Contracts that aren’t contracts Some contracts are never legally contracts (void) or can be terminated legally (voidable)Contracts for illegal acts are voidContracts which are unconscionable (heavily in favor of one party) are usually voidMost contracts with minors are voidable
6 Exceptions for contracts with minors Most contracts with minors are voidable at the discretion of the minor partyExceptionsContracts for necessitiesContracts for business purposesIf a contract has been ratified (minor turns 18 during term of contract)Fraud on the part of the minor
7 What makes a valid offer Serious Intent – Must intend to enter a contract with someoneAds are not offers, they are invitations to make an offerDefinite and CertainSpecific with regards to terms and conditionsCommunicated to the OffereePerson to whom the offer is intended receives the offer
8 How to terminate an offer Revocation – take back the offer before it is acceptedRejection – the offeree rejects the offerCounter Offer – roles are reversed and the offeree becomes the offerorTime Expires – if a time limit is specified for an offer to be accepted.Death or insanity of the offeror – if offeror dies or is declared insane before acceptance, then offer is terminated
9 AcceptanceMirror image rule – must accept the offer exactly as it is made or it becomes a counter offer.Acceptance can be shown in multiple formsSaying yes, I acceptSigning an agreementPerforming / upholding you part of the contract
10 Mutual AgreementIf the offer is accepted then usually there is mutual agreement between the parties.How do mistakes affect mutual agreementUnilateral mistakes – one party makes a mistakeCan’t cancel the contractBilateral mistakes – Both parties make a mistake. Either party can usually cancel
11 Other problems with mutual agreement Fraud – deliberate misstatement of facts by on partyParty who was defrauded can cancel contract and sue for punitive damagesInnocent Misrepresentation – innocent mistake by one partyParty who was victim of mistake can cancel but can’t get damagesDuress – when one party is forced to agree to a contractContract is voidableUndue influence – one party has special influence over the other party – contract is voidable
12 Consideration Consideration for a contract can take 3 forms Giving up something of valueMoney, itemsDoing something you don’t have to doGiving your time at workForbearance – giving up the right to do something you are allowed to dueIe – give up the right to sue someone in exchange for some kind of settlement
13 These aren’t consideration Promise to make a giftPromise to obey the lawPreexisting duty – it is something you are already required to doPast ConsiderationIllusory Promise – looks like a promise but really isn’tPromise to attend a social function
14 How a contract endsDischarge by performance – everyone does what they are supposed to doDischarge by agreement – both parties can agree to cancel or adjust the contractDischarge by Impossibility of performance – property is destroyed, death of one of the parties.Discharge by operation of law – statute of limitations has expired, bankruptcy
15 Other contract factsBoth parties must by legally competent to enter into a contractThe rights of a contract can be assigned to someone else and the oligations can be delegated to unless it would change the nature of the contract.Promissory estoppel – courts will enforce a contract even without consideration.
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