1. ENTERING INTO CONTRACTS Sunny Hills High School Business Law Mrs. Larsen

2. Chapter 7 HOW CONTRACTS ARISE HOW CONTRACTS ARISE PAGE 91 PAGE 91

3. Learning Objectives Six Elements of a Contract Six Elements of a Contract Major Classes of Contracts with Explanation Major Classes of Contracts with Explanation Three Basic Elements of an Offer Three Basic Elements of an Offer Requirements of an Acceptance Requirements of an Acceptance How an Offer can come to an END How an Offer can come to an END

4. Contract Law Enforces promises Enforces promises Gives reasonable assurances to all parties Gives reasonable assurances to all parties Provides remedies for failure to keep promises Provides remedies for failure to keep promises

5. Contracts written or oral written or oral oral contracts are more difficult to prove oral contracts are more difficult to prove in most jurisdictions the time to sue on the contract is shorter in most jurisdictions the time to sue on the contract is shorter such as two years for oral such as two years for oral compared to four years for written compared to four years for written

6. Contract is an agreement with specific terms an agreement with specific terms between two or more persons or entities between two or more persons or entities with a promise with a promise consideration consideration heart of most business dealings heart of most business dealings legal concerns are legal concerns are variations on circumstances and complexities variations on circumstances and complexities enter into an agreement enter into an agreement

7. Elements of a Contract There are six elements There are six elements Have all elements to be enforceable Have all elements to be enforceable Writing is not one Writing is not one

8. 1. Offer Proposal by one party (Offeree) Proposal by one party (Offeree) To another Party (Offeror) To another Party (Offeror) Showing a willingness Showing a willingness To create a legally binding contract To create a legally binding contract

9. 2 Acceptance Unqualified willingness to go along with the offer Unqualified willingness to go along with the offer Agreement to be bound by the terms of the offer Agreement to be bound by the terms of the offer

10. 3.Genuine Agreement Valid offer is met by a valid acceptance Valid offer is met by a valid acceptance a meeting of the minds a meeting of the minds Genuine—no fraud or misrepresentation Genuine—no fraud or misrepresentation

11. 4. Capacity Legal ability to enter a contract Legal ability to enter a contract Issues: minor, mental competence, mental state Issues: minor, mental competence, mental state

12. 5. Consideration Exchange of things of value Exchange of things of value Mutual Exchange creates the bond Mutual Exchange creates the bond Between the contractual parties Between the contractual parties

13. 6. Legality To be enforceable must be for a legal act or purpose To be enforceable must be for a legal act or purpose

14. Characteristics of a Contract one or more of these four groups one or more of these four groups For Example: Valid, Express, Bilateral and Written For Example: Valid, Express, Bilateral and Written 1. Valid, Void, Voidable, Unenforceable 2. Express or Implied 3. Bilateral or unilateral 4. Oral or Written

15. Valid, Void, Voidable, Unenforceable Valid is legally good or binding Valid is legally good or binding Void is No legal force Void is No legal force Not a contract Not a contract Can be cancelled Can be cancelled Example: Minor as a party Example: Minor as a party Voidable: One party can cancel Voidable: One party can cancel Unenforceable is not supported by law Unenforceable is not supported by law not words of parties not words of parties Example: Statue of Limitations has run out Example: Statue of Limitations has run out

16. Express or Implied Express: Express: stated in words, oral or written stated in words, oral or written Implied: Implied: comes from the actions comes from the actions

17. Bilateral, Unilateral A bilateral contract is a promise exchanged for a promise. 2 promises A bilateral contract is a promise exchanged for a promise. 2 promises (I promise to fix your car by Thursday and you promise to pay $500 on Thursday.) (I promise to fix your car by Thursday and you promise to pay $500 on Thursday.)

18. Unilateral A unilateral contract is a promise to give consideration in return for actual performance. One promise. A unilateral contract is a promise to give consideration in return for actual performance. One promise. (I will pay you $500 to fix my car by Thursday; the performance is fixing the car by that date.) (I will pay you $500 to fix my car by Thursday; the performance is fixing the car by that date.)

19. Oral, Written Oral Contract Oral Contract Created by word of mouth Created by word of mouth 2 or more people speak to each other 2 or more people speak to each other Written Contract Written Contract Words and terms are put into writing Words and terms are put into writing for clarity and proof for clarity and proof

20. REQUIREMENTS OF AN OFFER Offer is a proposal by one party to another to enter into a contract Offer is a proposal by one party to another to enter into a contract Three requirements Three requirements Seriously intended Seriously intended Definite and certain Definite and certain Communicated to the offeree by the offeror Communicated to the offeree by the offeror

21. Serious Intent Offers must have serious intent Offers must have serious intent Must be made with legal obligation in mind Must be made with legal obligation in mind Invitation to Negotiate Invitation to Negotiate Advertisements are treated as invitations, not offers Advertisements are treated as invitations, not offers Price devices are invitations to trade Price devices are invitations to trade

22. Definiteness and Certainty Offer must be definite and certain Offer must be definite and certain Amounts must be specified Amounts must be specified

23. Communication to the Offeree Many ways Many ways Telephone, letter, telegram, fax, email, other Telephone, letter, telegram, fax, email, other Given directly to the Offeree Given directly to the Offeree

24. REQUIREMENTS OF AN ACEPTANCE Acceptance is Acceptance is Unqualified willingness to go along with the offer Unqualified willingness to go along with the offer Requirements are Requirements are Unconditional acceptance Unconditional acceptance Method of acceptance follows the rules Method of acceptance follows the rules

25. Unconditional Acceptance Mirror Image Rule Mirror Image Rule Acceptance does not change the original offer Acceptance does not change the original offer Counter Offer: Any change to original Counter Offer: Any change to original Exceptions: Exceptions: UCC: Uniform Commercial Code UCC: Uniform Commercial Code Not a merchant, thus not an expert Not a merchant, thus not an expert Sale of goods: small changes to original offer Sale of goods: small changes to original offer

26. METHODS OF ACCEPTANCE At the TIME the acceptance is sent, At the TIME the acceptance is sent, the contract is created the contract is created Face-to-Face, Telephone Face-to-Face, Telephone Same method of communication Same method of communication At the TIME the acceptance is received, At the TIME the acceptance is received, the contract is created the contract is created Letters, telegrams, fax machines Letters, telegrams, fax machines Great distances Great distances

27. MORE METHODS OF ACCEPTANCE Offer or Counteroffer Offer or Counteroffer can specify a time and place for contract to take effect can specify a time and place for contract to take effect ACTION ACTION Contract is in effect when action occurs Contract is in effect when action occurs Condition of Silence Condition of Silence Not an acceptance Not an acceptance

28. Termination of an Offer Revocation Revocation Rejection Rejection Counteroffer Counteroffer Expiration of time Expiration of time Death or Sanity Death or Sanity

29. Revocation (to revoke) Change of mind or circumstances Change of mind or circumstances 2 Rules 2 Rules Revoked before accepted Revoked before accepted When offer is accepted When offer is accepted

30. Rejection (to refuse) Ends the offer Ends the offer Offer is not accepted Offer is not accepted

31. Counteroffer Ends the first offer Ends the first offer Creates a new offer to the original offerer Creates a new offer to the original offerer

32. Expiration of time Time limit must be complied with Time limit must be complied with No time stated, must be reasonable time No time stated, must be reasonable time Deposit of Money creates an option contract Deposit of Money creates an option contract Option is a binding promise for specified period of time Option is a binding promise for specified period of time Provides exclusive rights to offer Provides exclusive rights to offer

33. Death or Sanity Death or insanity of offeror before acceptance Death or insanity of offeror before acceptance Offer ends. Offer ends. Death ends an OFFER not a CONRACT Death ends an OFFER not a CONRACT

34. In some cases a contract can consist of several documents a contract can consist of several documents a series of letters, orders, offers and counteroffers. a series of letters, orders, offers and counteroffers.

35. There are a variety of types 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 promise to perform, but each is responsible; in which several parties make a joint promise to perform, but each is responsible; "implied,“ "implied,“ in which the courts will determine there is a contract based on the circumstances. in which the courts will determine there is a contract based on the circumstances.