What do we know?
In groups of 4-5 discuss the following and have one person
record the group's answers. You have 5 minutes to answer the questions so discuss quickly.
1. What factors make business possible? Why is it that business
can function in our country?
2. What is a contract?
3. What makes a contract valid?
4. What contracts have you entered into with other parties? Any
Why is this important?
Why is it important we study contract law?
Personal Implications
Can better protect ourselves from financial injury
in the consumer contracts we enter.
Professional Implications
Helps us understand how business works which
will help us to start our own businesses or be in sales positions, work in management or just better understand how the world functions.
Introduction to Contracts
We enter into a contract any time we agree to exchange things
of value. They are not always long, formal, printed documents for purchasing things like a house, insurance or a car.
A contract is any agreement enforceable by law. Not all
agreements are enforceable. Ex: Promises to do a favor, social agreements.
In order to be legally complete, a contract must include the
following six elements:
1. Offer: A proposal by one party (offerer) to another (offeree) indicating a willingness to enter a contract.
6 Elements Continued
3. Genuine Agreement: A clear understanding by the parties of what they are undertaking. AKA: “a meeting of the minds.” Offer and acceptance go together to create genuine agreement. Can be destroyed by deception or mistake.
4. Consideration: An exchange between the parties. Something of value (service, item, cash, etc.)
promised by each party. Doesn’t have to be equal.
5. Capacity: Law presumes those entering into
contracts have legal ability; exceptions: minors, the mentally incompetent, and drugged/drunk individuals.
Types of Contracts
Oral v. Written
Oral
Simply spoken.
Most contracts in business and consumer life are
from conversations.
Enforceable but disputes can be difficult to
settle.
Conversation can’t be filed away and used as
proof later on.
Written
On paper, a napkin, receipt, email, etc.
Recommended when contract is important or
complicated.
Often no certain form or language necessary,
just the terms and a signature will do.
Bilateral v. Unilateral Contracts
Bilateral
Means two-sided. Thus, "A promise for a
promise."
Example: If a friend says, I’ll sell you my phone for $150 and you say I’ll buy it, that is a bilateral contract. No
performance (the exchange of goods or money) has taken place yet but a contract has been formed. A contract comes into existence when promises are exchanged.
Unilateral
Means one-sided. "A promise for an act."
Promise by one person to do something when the
other person performs an act.
Example: Your friend says, “I’ll sell you my computer for $150 if you give me the
cash before noon tomorrow.”
The action of another creates the contract. Reward offer is an example.
Problem: when promisor attempts to revoke
Express v. Implied Contracts
ExpressContract where the terms fully stated in words, oral or written. Ex:
Signed lease for an apartment
phone call where you agree to buy a text book for $50
Implied
Conduct or actions of the parties creates and defines the contract. Example:
You need to file your tax return. You drop by the firm's
office and find out fees. The next day, you drop off your information to a receptionist without saying anything.
Here, you have an implied contract to have your taxes
filed and to pay the reasonable fees for the service, while no words were spoken. The contract is implied by your actions. If no fees are discussed, fair market value will be paid for the service or product.
Another example of an implied contract occurs when you
Executed v. Executory Contracts
Executed
Contract that has been fully performed on
both sides. Ex: contractor re-roofed house
and you paid them.
Executory
Not fully performed on both sides.
Example: You agree to buy 10 tons of ice
cream from Tillamook. They deliver it to you as asked for and you begin to consume it. The contract is an executory contract. It is executed on Tillamook's part and executory on your part. Once you pay for it, the
Valid- Means legally good. Contains all necessary
elements.
Void- no contract at all. No legal obligation for the parties.
One or more elements missing.
Example: one of the parties was found to be legally insane (no
mutual agreement) or if the purpose of the contract was illegal (no legality).
Voidable- One or both of the parties may void (withdraw
from) the contract.
The party having the option to void the contract may void it or
Intention to Create A Legal Obligation
Test of the reasonable person-
would a reasonable person
interpret the conduct as an offer?
If you were joking but a
reasonable person would
interpret conduct as intending to
contract, you have made an offer.
On the other hand if you were
serious, but a reasonable person
would interpret the conduct as a
joke, there is no offer.
Ex: “I’ll give you $5 for my house. It’s a