1. How Contracts Arise
Chapter 5
Business Law

2. 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?

3. Contracts Contract: The Three Theories of Contract Law:
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”

4. The Elements of a Contract:
Offer:
A proposal by one party to another intended to create a legally binding agreement
Acceptance:
The second party’s unqualified willingness to go along with the first party’s proposal
Genuine Agreement: Offer and Acceptance

5. First Party Second Party Capacity: Consideration: Legality:
The legal ability to enter a contract
Consideration:
The exchange of things of value
Legality:
People cannot enter into contracts to commit illegal acts
Second Party

6. Characteristics of a Contract
Valid, void, voidable, or unenforceable
Express or implied
Bilateral or unilateral
Oral or written

7. Valid, Void, Voidable, or Unenforceable
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

8. Express or Implied Express Contract: Implied Contract:
Stated in words and may be either oral or written
Implied Contract:
Actions of the parties
Getting gas

9. Bilateral or Unilateral
Bilateral Contract:
Contains two promises
Exchange for doing something
Unilateral Contract:
Contains a promise by only one person to do something
Offer
Promise by offeror
Agreement
Acceptance
Promise made by offeree at offeror’s request
Unilateral Contract
Bilateral Contract
Offer
Promise by offeror
Agreement
Acceptance
Act performed by offeree at offeror’s request
Unilateral Contract

10. Oral or Written Oral Contract: Written 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

11. Offer and Acceptance Offeror: Offeree: Three Basic Requirements:
Makes the offer
Offeree:
Receives the offer
Three Basic Requirements:
Made seriously
Definite and certain
Communicated to the offeree

12. 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

13. 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

14. Communication to the Offeree
Offers may be made by telephone, letter, telegram, fax machine, , or by any other method that communicates the offer to the offeree

15. 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.

16. C A B Methods of Acceptance:
According to common law an acceptance that must be sent over long distances is effective when it is sent C A B

17. 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

18. Expiration of Time: Death or Insanity:
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