1. Chapter 4.1 Agreements and Contracts

3. Key Points Nature and importance of contracts Elements of contracts Different classifications of contracts Express or Implied Unilateral or Bilateral Oral or Written

4. Contracts Most people view contracts as long, printed, formal documents that are signed when buying a vehicle, selling a house, or purchasing insurance. Those only represent a small fraction of contracts that you will make in your lifetime.

5. Contracts You create a contract anytime you agree to exchange things of value. Buying fast food Filling your car with gas Signing up for an email account Renting a video

6. Contract Any agreement enforceable by law. You should never enter into a contract without understanding the legal responsibilities involved.

7. Contract Not ALL agreements are contracts Promising to take out the trash is NOT a contract Posting an ad in the newspaper and offering a reward for a lost dog IS a contract. If someone answers the ad and returns the dog, that person is owed what was promised in the ad.

8. 6 Elements of a Contract Offer Acceptance Genuine Agreement Consideration Capacity Legality

9. Offer A proposal made by one party (offeror) to another party (the offeree) indicating a willingness to contract. Intent: create a legally binding agreement

10. Acceptance The agreement of the offeree to be bound by the terms of the offer. The second party’s unqualified willingness to go along with the first party’s proposal.

11. Genuine Agreement Means that an agreement is true and genuine. Offer and acceptance need to occur in order for a contract to lead to a genuine agreement. It is a meeting of the minds. An agreement can be destroyed by fraud, misrepresentation, mistake, duress (pressure or force), or undue influence.

12. Capacity Legal ability to enter a contract. Minors, mentally impaired, and individuals under the influence are people who are generally excused from contractual responsibility.

13. Consideration The thing of value promised to one party in a contract in exchange for something else of value promised by another party. The mutual exchange binds the parties together.

14. Consideration Example Suppose Adam agree to sell his iPod for $50 to Amy. Amy agrees to buy it at that price. Adam has made a promise to sell. Amy has made a promise to buy. Each promise is consideration for the other.

15. Legality Means the contract does not entail violating the law. Example: Agreeing to commit a crime or a tort. Even if all 5 other elements are present, a contract can be void if it violates the law.

16. Legality Example Luis, a candidate for mayor, agreed to pay Sandra, a newspaper reporter, $1000 to write an article containing false statements that would damage the reputation of Edward, Luis’ opponent. Since this agreement required Sandra to commit libel, it is illegal.

17. Characteristics of a Contract Valid, void, voidable, and unenforceable Express or implied Bilateral or unilateral Oral or written Executory or Executed

18. Characteristics Of A Contract Valid Means legally good. Legally binding Void Has no legal affect A contract that is missing one of the 6 elements would be void Ex. One of the parties is a minor When a party to a contract is able to void or cancel a contract, it is called a voidable contract.

19. Characteristics Of A Contract A contract between two minors can be voided by either one of them because minors have the right to get out of contracts.

20. Unenforceable A contract that the court will not uphold, generally because of some rule of law, such as the statute of limitation. If you wait too long to bring a lawsuit for breach of contract, the statute of limitation may have run its course, making the contract unenforceable.

21. Express or Implied Contracts Express Contract statement that may be oral or written. Implied Contract that comes about from the actions of the parties involved. People often enter implied contracts without saying a word to each other at all.

22. Implied contract example If you go to a self-service gas station that requires payment before the attendant will turn on the pump, you can simply hand the attendant your money without saying a word, pump your gas, and drive away. An implied contracts arises based on actions.

23. Bilateral A contract that contains 2 promises. One party promises to do something in exchange for the other’s promise to do something else. Most contracts are created this way. One person says “I’ll sell you my DVD player for $50” the other person says “I’ll buy it.”

24. Unilateral A contract that contains a promise by only one person to do something, if and when the other party performs some act. Unilateral Vs. Bilateral Contract

25. Unilateral Example Your friend says “I’ll sell you my DVD player for $150 if you give me cash by noon tomorrow.” He or she will not be required to keep the promise unless you hand over the cash before noon on the following day.

26. Reward Offer One of the most common instances of a unilateral. The acceptance of the reward must precisely comply with the offer. If there is an ad in the newspaper for a reward for a lost computer, the ad alone did not create the contract. The contract comes into play only when the laptop is returned.

27. Oral Contract Created by word of mouth and comes into existence when two or more people form a contract by speaking to each other. One person usually offers to do something, and another person usually offers to do something in return.

28. Written Contract Assures both parties know the exact terms of the contract and also provides proof that the agreement was made.

29. Executory A contract that has not yet fully been performed. Both sides still have something to do in order for the contract to be complete. If you say “I will give you $5 for that t-shirt” I say “okay” Until the exchange has taken place, the contract is not fully complete.

30. Executed A contract that has been completed and or fully performed. If you say “I will give you $5 for that shirt.” I say “Okay.” You hand me the $5 and I hand you the shirt. Then the contract can be considered executed (complete).

31. Review Valid Legally Good. All elements are there. VoidNo legal effect. Missing an element. When one party is asked to do something illegal, or something that cannot be done Voidable: Forced into a contract When one party was incapacitated When a party is able to cancel or void a contract for a legal reason if they want to. A contract between two minors Valid contract that can be enforced, but is canceled by one of the parties. One party is usually bound to contract where the other party can get out. Unenforceable Court will not uphold. Example: Statute of limitation

32. Review Express Contract Oral or WrittenOral- spoken Written- Assures both parties know the terms Implied Contract Comes about from the actions of the parties Getting hair done- you pay for service Going to restaurant and paying the bill Getting gas at a gas station

33. Review Unilateral Contains only one promise to do something ONLY if the other party does something else Ill sell you my DVD player if you give me cash by noon tomorrow. After noon, the deal can be off. Reward for a lost animal/item. You only pay IF the item is returned to you. Bilateral Contains two promisesOne parts does something in exchange for something else. Buying a car Buying a house *Most contracts are created this way

34. Chapter 4.2 How A Contract Begins

35. Key Points Requirements of a value offer Requirements of an acceptance Difference between an offer, an invitation, to negotiate, an acceptance, and a counteroffer How offers are terminated

36. Review: Page 88 Elements of a contract: Offer Acceptance Genuine Agreement Capacity Consideration Legality

37. Review Offeror: Person making the offer Offeree: Person receiving the offer

38. Offer Has 3 basic requirements: Serious Intent Needs to be Definite and Certain Communicated to the offeree

39. Serious Intent An offer must be with the intention of entering into a legal obligation An offer made in the heat of anger or as a joke would not meet this requirement. For example, a friend complaining about her unreliable car might say “Give me $5 and its yours.” Your friend cant be forced to sell it for $5

40. Invitations to Negotiate Invitations to deal, trade, or make an offer. This is often confused with an offer.

41. Invitation To Negotiate An ITN is simply allowing discussions to occur that could lead to an offer and acceptance In contracting an agreement is not valid unless there is an official offer and acceptance of it, and then an exchange of something of value. The ITN is none of these; it simply opens to door as a notice to start talking about potential offers and related details.

42. Invitation to Negotiate: Scenario A store puts an ad in the newspaper/a magazine/a catalog Stores don’t have enough merchandise to sell it to the amount of people who may see the ad. The ad is seen as an invitation to negotiate, It is NOT an offer. This is also the case is there is a misprint in an ad. It is not a contract.

43. Invitation to Negotiate Some advertisement can be seen as offers when they contain a specific promise “First come first serve” Number of people who can buy it becomes limited, making the advertisement an offer.

44. Invitation to Negotiate Examples Price Tags Signs in a store window or on the counters Prices marked on merchandise

45. Definiteness and Certainty An offer must be definite and certain to be enforceable Having distinct limits with no uncertainty A landlord of an apartment with faulty plumbing might agree to pay a share of the cost if the tenant fixes the plumbing. Court would not enforce this contract because its not possible to determine what is meant by the word “share”

46. Communication to the Offeree Offers can be made by: Telephone Letter Telegram Fax Email Or any method that communicates the offer to the offeree.

47. Requirement of an Acceptance Acceptance must be unconditional It must follow the rules regarding the method of acceptance. Willing to go along with party’s proposal.

48. Unconditional Acceptance Acceptance must not change the terms of the original offer in any way according to the mirror image rule Mirror image rule The terms stated in the acceptance must exactly mirror or match the terms of the offer The Acceptance must mirror the offer

49. Unconditional Acceptance Any change in the terms of the offer means the offeree has not really accepted the offer, but has made a counteroffer. Counteroffer A response to an offer in which the terms of the original offer are changed.

50. Unconditional Acceptance When a Counteroffer occurs… The two parties change roles. The original offeror becomes the offeree; and the offeree becomes the offeror.

51. Mirror Image Exceptions Contracts for personal property such as: Clothing Furniture Food Motor Vehicles Appliances Etc.

52. Methods of Acceptance This is when a contract comes into existence. When parties are dealing face-to- face or on the phone, no problems exist. Each party listens and talks about contract. A conversation occurs.

53. Methods of Acceptance When communicating by letter, telegram, or fax, special rules apply. An acceptance that must be sent over long distances is effective when sent.

54. Termination Of An Offer Even though an offer has been properly communicated to the offeree; it may be terminated. Termination can occur in the following ways: Revocation, Rejection, Counteroffer, Expiration of time, and death or insanity.

55. Revocation Is the taking back of an offer by the offeror due to: Change of mind Circumstances result in deciding to withdraw the offer before it has been accepted.

56. Revocation 2 important rules govern revocation 1. An offer can be revoked any time before it is accepted 2. A revocation becomes effective when it is received by or communicated to the offeree.

57. Rejection A refusal of an offer by the offeree that brings the offer to an end. Example: If someone says “I’ll sell you my camera for $150.” and you say, “I don’t want it!” The offer has come to an end.

58. Counteroffer Ends the first offer No contract comes into existence unless the original offeror accepts your new offer. Roles often change... The original offeror becomes the offeree; and the offeree becomes the offeror

59. Expiration of Time If the offeror sets a time limit for the acceptance of the offer, it must be honored. Brad says to Joe, “I will sell you my motorcycle for $2,000 if you give me the money by noon tomorrow.” Joe must accept the time frame. After Noon, if Joes doesn’t come up with the $2000 the offer is no longer existent.

60. Expiration Of Time Option Contract When an offeree pays money or other consideration to an offeror to hold an offer open for an agreed period of time. It is a binding promise to hold an offer open for a specified period of time.

61. Death or Insanity If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end. Death ends an offer, but does not end a contract, except contracts related to personal services.