2. Chapter 5—Section 1 Contracts I.Understanding Contract Law A. Formal documents that you sign when buying or selling a home, buying a vehicle, or purchasing insurance are only a small portion of all contracts.

3. B.You create a contract any time you agree to exchange things of value C. Many common daily activities involve contracts

4. II. The Nature of a contract A. A contract is any agreement enforceable by law B. The Three Theories of Contract Law

5. 1.Equity Theory—did the parties involved exchange things of equal value? 2.Will Theory—Did both parties agree to the terms set forth in the agreement? The court doesn’t ask if the contract was fair. This theory makes it difficult to know what the parties were thinking when entering the contract. 3.The Formalist Theory—Did the parties reach a “meeting of the minds”? Certain elements must exist for there to be a contract.

6. C. 6 Elements of a Contract 1.Offer 2.Acceptance 3.Genuine Agreement--If a valid offer is met by a valid acceptance 4.Capacity—the legal ability to enter into a contract 5.Consideration—must be an exchange of things of value 6.Legality—You cannot enter into a contract to commit an illegal act

7. III. Characteristics of a contract Contracts can be created in different ways and assume different forms. A. Valid, Void, Voidable, or Unenforceable

8. 1.Valid—legally good 2.Void—No legal effect. An agreement that is missing one of the elements would be void. 3.Voidable—not void in itself but may be voided by one or more of the parties. 4.Unenforceable—Court will not uphold because of a certain rule of law. Ex.—waiting too long to bring forward a suit for breach of contract. Statute of limitations may have run out.

9. B. Express or Implied 1.Express contract is stated in words and can be either oral or written 2.Implied Contracts come from the actions of the parties (can be entered into without exchanging any words).

10. C. Bilateral or Unilateral 1.Bilateral Contract contains two promises— most contracts are created in this way. 2.Unilateral Contract—promise of one person to do something only if the other party performs a certain act. Ex.—Reward offers

11. D. Oral or Written 1.An oral contract happens when two or more people form a contract by speaking to each other. 2.Written contracts assure that both parties know the exact terms of the contract and provides proof of the contract.