1. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts Chapter 4: Contracts & Fraud

2. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to identify a contract’s elements (p. 108) How to identify valid, void, voidable, and unenforceable contracts (p. 110)

3. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to distinguish between express and implied contracts (p. 111) How to identify unilateral and bilateral contracts (p. 111)

4. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to distinguish between oral and written contracts (p. 112)

5. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Why It’s Important Identifying a contract’s elements will help you manage your affairs in an intelligent and effective manner.

6. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The Nature of a Contract The Three Theories of Contract Law The Elements of a Contract Section Outline Understanding Contract Law

7. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Characteristics of a Contract Valid, Void, Voidable, or Unenforceable Express or Implied Bilateral or Unilateral Oral or Written Section Outline

8. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question How would you define contract?

9. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise A contract is any agreement enforceable by law. Not all agreements are contracts, however. Whether or not it’s a contract, depends on the circumstances of the agreement. The Nature of a Contract

10. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The evolution of contract law shows how its focus has changed. The Three Theories of Contract Law

11. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise In the past, courts asked whether the parties to a contract exchanged things of equal value. This approach was called the equity theory of contract law. The Equity Theory

12. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The advent of industrial capitalism forced the courts to shift their focus.They began to ask if the parties had agreed to the terms in the agreement of their own free will. The Will Theory

13. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Then the courts began to study the parties’ actions and words to determine if there was a “meeting of the minds.” The Formalist Theory

14. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise This led to certain fixed elements in a contract. It is called the formalist theory because it relies on the form of the agreement. The Formalist Theory

15. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise There are six elements of a contract. Elements of a Contract 1.Offer 2.Acceptance 3.Genuine agreement 4.Consideration 5.Capacity 6.Legality

16. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An offer is a proposal by one party to another intended to create a legally binding agreement. An acceptance is the second party’s unqualified willingness to go along with the first party’s proposal. Elements of a Contract

17. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise If a valid offer is met by a valid acceptance, a genuine agreement exists. Capacity is the legal ability to enter a contract. Elements of a Contract

18. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Consideration is the exchange of things of value. Legality means that people can only enter into contracts for legal purposes. People cannot enter into contracts to commit illegal acts. Elements of a Contract

19. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question What is one characteristic that you think a contract must have?

20. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Contracts can have any of the following characteristics: Characteristics of a Contract Valid, void, voidable, or unenforceable Express or implied Bilateral or unilateral Oral or written

21. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Valid, Void, Voidable, or Unenforceable A valid contract is legally binding. A contract that is void has no legal effect.

22. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Valid, Void, Voidable, or Unenforceable When a party to a contract is able to void or cancel the contract for some legal reason, it is a voidable contract. An unenforceable contract is one the court will not uphold.

23. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An express contract is stated in words and may be either oral or written. An implied contract comes about from the actions of the parties. Express or Implied

24. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Sarah paid Isabel $50 to hack into Mrs. Wojcik’s computer files for a copy of the upcoming final exam, but Isabel gave Sarah the pre-test instead. Is this contract valid, void, voidable, or unenforceable?

25. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise ANSWER Void. It has no legal affect.

26. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise A bilateral contract contains two promises. A unilateral contract contains a promise by only one person to do something, if and when the other party performs some act. Bilateral or Unilateral

27. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise 5.1 How Parties Reach Agreement

28. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise 5.1 How Parties Reach Agreement

29. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An oral contract is created by word of mouth and comes into existence when two or more people form a contract by speaking to each other. Sometimes, however, it is desirable to put contracts in writing. Oral or Written

30. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 1. 1.What are the elements of a contract? Section 5.1 Assessment

31. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned Offer, acceptance, genuine agreement, capacity, consideration, and legality. Section 5.1 Assessment Answer

32. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 2. 2.What are the differences among valid, void, voidable, and unenforceable contracts? Section 5.1 Assessment

33. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned A valid contract is legally binding. An unenforceable contract will not be upheld generally by the court because of some rule of law. Section 5.1 Assessment Answer

34. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned A contract that is void has no legal effect and a voidable contract is not void in itself, but may be voided by one or more of the parties if the party so chooses. Section 5.1 Assessment Answer

35. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 3. 3.What are the differences between express and implied contracts? Section 5.1 Assessment

36. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned An express contract involves words, while an implied contract does not. Section 5.1 Assessment Answer

37. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 4. 4.What are the differences between unilateral and bilateral contracts? Section 5.1 Assessment

38. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned A unilateral is a one-sided contract, in which one party makes a promise in exchange for an act. In a bilateral contract, a contract legally comes into existence when promises are exchanged. Section 5.1 Assessment Answer

39. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 5. 5.What are the differences between oral and written contracts? Section 5.1 Assessment

40. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned Oral contracts are spoken. Written contracts are in writing. Section 5.1 Assessment Answer

41. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts End of Section 5.1

42. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts Section 5.2

43. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to recognize the requirements of an offer (p. 114) How to distinguish between an offer and an invitation to negotiate (p. 114)

44. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to recognize the requirements of an acceptance (p. 116) How to distinguish between an acceptance and a counteroffer (p. 117)

45. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to recognize when an offer has terminated (p. 119)

46. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Why It’s Important You need to know when an offer has been made and when an acceptance goes into effect to make sound contracts.

47. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Requirements of an Offer Serious Intent Definiteness and Certainty Communication to the Offeree Section Outline Requirements of an Acceptance Unconditional Acceptance Methods of Acceptance

48. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Termination of an Offer Revocation Rejection Counteroffer Expiration of Time Death or Insanity Section Outline

49. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question What do you think the requirements of an offer are?

50. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The person who makes an offer is the offeror. The person who receives the offer is the offeree. Requirements of an Offer

51. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An offer has three basic requirements. It must be: Requirements of an Offer 1.Made seriously 2.Definite and certain 3.Communicated to the offeree

52. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An offer must be made 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. Serious Intent

53. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Sometimes an invitation to negotiate can be confused with an offer. Serious Intent

54. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Advertisements in newspapers, magazines, and catalogs are examples of invitations to negotiate, which are invitations to make an offer. Serious Intent

55. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An offer must be definite and certain to be enforceable. Offers that use vague words or terms that cannot be quantified lack definiteness and certainty. Definiteness and Certainty

56. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Offers may be made by any method that communicates the offer to the offeree, including: Communication to the Offeree TelephoneLetterTelegram Fax machine E-mail

57. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise ANSWER The offeree is the person making the offer. The offeror is the person receiving the offer.

58. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question Is a counteroffer the same thing as an acceptance? Why or why not?

59. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise To be legally binding, the acceptance must meet certain basic requirements. Requirements of an Acceptance The acceptance must be unconditional. The acceptance must follow the rules regarding the method of acceptance.

60. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The acceptance must not change the terms of the original offer in any way. This principle is called the mirror image rule. Unconditional Acceptance

61. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Any change in the terms of the offer means the offeree has not really accepted the offer. The offeree has made a counteroffer. Unconditional Acceptance

62. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise If a counteroffer is made, the original offeror is not obligated to go along and no contract exists. The offeror becomes an offeree and may accept or reject the counteroffer. Unconditional Acceptance

63. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Contracts for the sale of goods are exceptions to the mirror image rule. These exceptions include contracts for personal property such as clothing, furniture, food, motor vehicles, and appliances. Unconditional Acceptance

64. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The time at which an acceptance takes place is important because that is when the contract comes into existence. Methods of Acceptance

65. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Special rules govern acceptances that take place when the parties are separated by a distance and must be communicated by letters, telegrams, or fax. Methods of Acceptance

66. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise According to common law, an acceptance that must be sent over long distances is effective when it is sent. Methods of Acceptance

67. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise An acceptance is implied when the offeree accepts by the same or a faster means than that used by the offeror. Methods of Acceptance

68. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise The authorization of an acceptance can also be implied by any reasonable means, including: Methods of Acceptance Past practices between the parties The usual method in the trade Customary means in comparable transactions

69. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question What is one way an offer is terminated?

70. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Termination of an offer may occur in any of the following five ways: Termination of an Offer 1.Revocation 2.Rejection 3.Counteroffer 4.Expiration of time 5.Death or insanity

71. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Revocation is the taking back of an offer by the offeror. Revocation

72. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Rejection, or refusal, of an offer by the offeree brings the offer to an end. Rejection

73. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise A counteroffer ends the first offer. The offeree creates a new offer, which the original offeror may accept or reject. Counteroffer

74. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise If the offeror sets a time limit for the acceptance of the offer, it must be honored. Expiration of Time

75. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end. Death or Insanity

76. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 1. 1.What are the requirements of an offer? Section 5.2 Assessment

77. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned Serious intent, clear and definite terms, and communication to the offeree. Section 5.2 Assessment Answer

78. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 2. 2.What is the difference between an offer and an invitation to negotiate? Section 5.2 Assessment

79. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned An offer empowers the offeree to accept its terms and create a contract. An invitation to negotiate is an invitation to the other party to make an offer. Section 5.2 Assessment Answer

80. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 3. 3.What are the requirements of an acceptance? Section 5.2 Assessment

81. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned Must be unconditional and must follow the rules regarding the method of acceptance. Section 5.2 Assessment Answer

82. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 4. 4.What is the difference between an acceptance and a counteroffer? Section 5.2 Assessment

83. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned An acceptance creates a contract. A counteroffer means that the original offer has not been accepted. The offeree has made a new offer, which the original offeror may accept or reject. Section 5.2 Assessment Answer

84. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 5. 5.When is an offer terminated? Section 5.2 Assessment

85. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned Upon revocation by the offeror, on rejection by the offeree, when a counteroffer is made, after the expiration of a set period of time, and/or the death or insanity of the offeror. Section 5.2 Assessment Answer

86. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts End of Section 5.2

87. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts Section 6.1

88. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to distinguish between fraud and innocent misrepresentation (pp. 128 and 132)

89. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise What You’ll Learn How to distinguish between the remedy available for fraud and the remedy available for misrepresentation (pp. 128 and 132)

90. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Why It’s Important Learning the elements of fraud may prevent you from being victimized or help you claim your rights if you are defrauded.

91. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Fraud False Representation of Fact Representation Known to Be False False Representation Intended to Be Relied Upon Section Outline Defective Agreements

92. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Innocent Misrepresentation Fraud, continued False Representation Actually Relied Upon Resulting Loss

93. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise If the offeror makes a valid offer, and the offeree has made a valid acceptance, then a genuine agreement has been reached. The courts describe this type of agreement as “a meeting of the minds.” Genuine Agreement

94. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise 6.1 Genuine Agreement Several circumstances might create a defective agreement: Fraud Misrepresentation Mistake Duress Undue Influence

95. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question How would you define fraud?

96. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Fraud Fraud is a deliberate deception intended to secure an unfair or unlawful gain.

97. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise You may rescind, or cancel, the contract. You may sue for money damages. Remedies for Fraud

98. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise To succeed in a lawsuit for fraud, the following five elements must be demonstrated: The Elements of Fraud 1.A false representation of fact. 2.Knowledge of the falsity by the party making the false representation.

99. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise 3.Intent to deceive by the party making the false representation. 4.Reasonable reliance by the innocent party. 5.An actual loss must be suffered by the innocent party. The Elements of Fraud

100. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise False Representation of Fact Fraud requires a false representation of a material, existing fact. A material fact is one that is important; it matters to one of the parties.

101. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise False Representation of Fact Under some circumstances, individuals can make false representation by choosing not to reveal important information. This is known as concealment, or passive fraud.

102. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Representation Known to Be False To be held accountable for fraud, the party making the false representation must be aware that it is false. This may be shown by: Proving actual knowledge Showing the statement was made recklessly

103. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise False Representation Intended to Be Relied Upon To prove fraud, the person making the misrepresentation must intend that the other party will rely upon the information as part of the contract negotiations.

104. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise False Representation Actually Relied Upon To prove fraud, the false representation must be reasonably relied upon by the other party when the agreement is made.

105. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Resulting Loss In proving fraud, the innocent party must show some monetary loss.

106. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Pre-Learning Question How is misrepresentation different from fraud?

107. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Innocent Misrepresentation Misrepresentation is the act of making an innocent statement that turns out to be false, when the person honestly believed the statement was true at the time it was made.

108. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Remedy for Misrepresentation The right to rescind the contract. You may not win damages.

109. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise After Mrs. Grayson died, her neighbor, Joel, asked her son, Tom, if he would sell her TV. Before giving Tom $100, Joel asked, “It works, doesn’t it?” and Tom answered, “As far as I know.” However, when Joel plugged it in, it did not work.

110. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Can Joel claim there was false representation? Why or why not?

111. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise ANSWER Probably not. “As far as I know,” would probably be considered innocent misrepresentation.

112. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned 1. 1.What are the elements of fraud? Section 6.1 Assessment

113. Understanding Business and Personal Law Contracts Section 5.1 How Contracts Arise Reviewing What You Learned There must be a false representation of a material fact. The party making the representation must know that it is false. Section 6.1 Assessment Answer

114. 5Chapter SECTION OPENER / CLOSER: INSERT BOOK COVER ART Contracts End of Section 6.1