1. Mr. Sherpinsky’s Business Law Class Entering Into Contracts 2014

2. Mr. Sherpinsky’s Business Law Class Entering Into Contracts

3.  contract (p. 106)  offer/acceptance (p. 109)  genuine agreement (p. 109)  capacity (p. 109)  consideration (p. 109)  legality (p. 109)  void/voidable contract (p. 110)  unenforceable (p. 111)  express/implied contract (p. 111)  bilateral/unilateral contract (pp. 111, 112)

4. How would you define contract?  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.

5. Evolution of contract law:  Equity Theory: Parties to a contract exchanged things of equal value. This approach was called the equity theory of contract law.  Free Will Theory: 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.  Formalist Theory: Then the courts began to study the parties’ actions and words to determine if there was a “meeting of the minds.”

6.  Offer  Acceptance  Genuine Agreement  Consideration  Capacity  Legality ***All six elements must be present in order to constitute a contract***

7. offer  An offer is a proposal by one party to another intended to create a legally binding agreement  Must be directed to a specific person  Example:  Menu listing prices isn’t an offer because it’s not directed toward anyone in particular  When you place your order, you make an offer  When they start cooking your food, the restaurant has accepted your offer, and a contract has been formed

8. acceptance  An acceptance is the second party’s unqualified willingness to go along with the first party’s proposal certain actions carry out the terms of a bargain  The law infers acceptance from certain actions, such as signing a contract or beginning to carry out the terms of a bargain

9.  Genuine Agreement: genuine agreement  If a valid offer is met by a valid acceptance, a genuine agreement exists.  Capacity  Capacity is the legal ability to enter a contract.  Minors can make contracts, but many times they are asked to have a cosigner (Person responsible for the contract should the minor fail to pay  Conditions affecting capacity:  Intoxication, mental illness, legal competency or something against the public good is usually NOT enforceable

10.  Consideration  Consideration is the exchange of things of value. (Must be legally sufficient and bargained-for) What about a promise?  You buy a shirt, the consideration you pay is the money, and the merchant’s is the item you’re buying  DO NOT have to be the same value

11.  Legality  Legality means that people can only enter into contracts for legal purposes. People cannot enter into contracts to commit illegal acts.

12.  Contracts can have any of the following characteristics:  valid, void, voidable, or unenforceable  express or implied  bilateral or unilateral  oral or written

13.  Contracts can have any of the following characteristics:  Formal and Informal  Formal:  Formal: Requires a special form or method of creation for contract formation  Examples: contracts under seal, negotiable instruments, letters of credit  Informal or (Simple Contracts): put into writing to hold proof of existence  Requires no special form for contract information, but usually details or conditions are put into writing to hold proof of existence.

14. Valid, Void, Voidable, or Unenforceable valid  A valid contract is legally binding.  MUST have the necessary contractual elements of offer, acceptance, agreement, consideration, legal capacity, and legal purpose void  A contract that is void has no legal effect.  No contract exists, or there is a contract without legal obligations

15. Valid, Void, Voidable, or Unenforceable void  A contract that is void has no legal effect. a voidable contract  When a party to a contract is able to avoid, or enforce, or cancel the contract for any legal reason, it is a voidable contract. unenforceable  An unenforceable contract is one the court will not uphold.

16. Express or Implied  Express words.  Express contract is stated in words.  Can be oral, written or a combination. implied in fact. (Conduct)  An implied in fact contract comes about from the actions of the parties. (Conduct)

17. Bilateral or Unilateral bilateral contract  A bilateral contract contains two promises.  Promise for a promise unilateral contract  A unilateral contract contains a promise by only one person to do something, if and when the other party performs some act.  A promise for an act  Acceptance is the completed or substantial performance of the contract

18. Oral or Written AAn o oo 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. SSometimes, however, it is desirable to put contracts in w ww writing. PPPPennsylvania Law requires written contracts!

19. CONTRACT FORMATION Bilateral A promise for a promise Unilateral A promise for an act Formal Requires a special form for creation Informal Requires no special form for creation Express Formed by words Implied by fact Formed at least in part by the parties conduct

20. Offer and Acceptance

21. 1. Must be made seriously 2. Has to be definite and certain 3. Must be communicated to offeree

22.  No contract without both primary elements  Mutually agreed terms

23.  Offeror  Gives proposal  Offeree  Person to whom offer is made  Proposal by offeror to do something  Must appear to intend to create legal obligation  Terms must be definite & complete  Must be communicated to the offeree

24.  Objective legal test used by jurors or judges  Concerned with the appearance of the action ▪ Problem: Think you are joking but interpreted as serious intention then you have made an offer ▪ Problem: If you are serious but interpreted as joking you have not made an offer

25.  The intention of entering into a legal obligation.  Example: Venting

26.  Offer must be made with seriousness  Not in heat of anger  As a joke Advertisement for Lava Lamps, $49.98 Buyer comes to store to buy a lamp Clerk apologized and said lamps had sold out in 1 hour after the store opened.

27. Information communicated without indicating intent  Social Agreements ▪ Don’t create legal obligations  Advertisements ▪ Not considered an offer – but an invitation to make offer

28.  Advertisements (price tags, signs in windows or on counters, prices marked on merchandise)…unless it contains a specific promise, Example: “first come, first served”  Example 3, pg. 114

29.  Allows court to determine what was intended & identify legal rights  Complete  Price (if not communicated = current market price)  Full terms for payment  Legal description of goods/services  Date for delivery of possession  Date for delivery of the transfer of ownership/title/deed  Definite  Essential term identified clearly

30.  Cannot be a certain offer if something is too unclear or vague  Example 4, pg. 115-116

31.  Only intended offeree can accept  Can’t accept if didn’t know offer was made

32.  Telephone, letter, telegram, fax, e-mail, or any other method that communicates the offer to the offeree.  Example 5, pg. 116

33. 1. Must be made seriously 2. Has to be definite and certain 3. Must be communicated to offeree

34. Must be 1. Unconditional 2. Unqualified 3. Must follow all rules regarding the method of acceptance

35.  Offeree must accept all terms  Changes = Counteroffer  Mirror Image Rule ▪ Terms in acceptance exactly match the terms contained in the offer

36.  Silence as Acceptance  Continuing relationship – agree in advance ▪ Not Valid if offer is worded in a way in which silence means acceptance  Unilateral Acceptance  Promises something in return for the offeree’s performance & indicates performance is acceptance ▪ Only be revoke after reasonable amount of time

37.  Bilateral Acceptance  Most offers use this type of acceptance  Most common method of acceptance ▪ Requires that offeree accept by communicating the requested promise back to offeror

38.  Telephone?  Text Messaging?  Mail?  Delivery Service?  E-mail?  Fax?  Other?

39. require  Offeror may require offeree to use a certain communication method to accept.  Once it is accepted, it’s binding  Oral/Spoken  Mail  Telegram  Fax  Email

40. May occur in any of 5 ways 1. Revocation 2. Rejection 3. Counteroffer – ends the first offer 4. Expiration of time 5. Death or Insanity

41. Taking back of an offer by the offeror Example  Rob offered to sell his CD burner to Jodi Costa for $250.00  Jodi examined the CD burner and found that it was in good condition  However, Jodi couldn’t decide if she wanted to spend so much money.  She told Rob she would consider his offer.  Rob called Jodi later the same day and withdrew his offer.  Can he do so? Why?  Jodi had not yet accepted his offer….  – example 8, pg. 120

42. Refusal of an offer by the offeree brings the offer to an end.  Example  Diane decided that she wanted to make some extra money by selling dried flower.  She offered the flowers to a friend for $40.00  Friend looked at the flowers and decided not to purchase them.  Has the offer come to an end?  – example 9, pg. 120

43. A counteroffer ends the first offer. Example:  “I’ll sell you my camera for $50.00, and you say “I’ll give you $45.00 for it.”  No contract comes into existence unless the original offeror accepts your new offer.  If you say later, “Ok, I’ll give you $50.00 you are now making a new offer…”  Mirror Image Rule (Must be exactly same)

44. If the offeror sets a time limit for the acceptance of the offer, it must be honored. Example:  If Frank says to John, “I’ll sell you my motorcycle for $1,000 and you have till noon tomorrow to accept, then you must honor the timeline given.  If no timeline is given then the offer must be accepted within a reasonable time.

45. Example:  Options  If an offeree pays money or other consideration to an offeror to hold an offer open for an agreed period of time, an option contract comes into existence.  An option contract is a binding promise to hold an offer open for a specific period of time. ▪ Exclusive right to accept the offer ▪ Within the agreed time ▪ Subject to the terms of the original offer

46. If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end.  Death ends an offer, but not a contract  Estate heirs will have to comply with the terms of any contract  Unless the contract is for personal services  Destruction  Destruction of specific subject matter

47.  Options  Offeree gives the offeror something of value in return for a promise to keep the offer open ▪ Binding the Offerer within the specific limits  Firm Offers (Standing Offers) MUST STAY OPEN UNTIL DEADLINE!  Applies to merchants who make offers in writing…MUST STAY OPEN UNTIL DEADLINE! ▪ MUST contain a term stating how long it is to stay open and how it MAY be revoked!