BUSINESS LAW Chapter 5 PowerPoint Notes & Assignment How Contracts Arise

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1 BUSINESS LAW Chapter 5 PowerPoint Notes & Assignment How Contracts Arise SECTION 5.1 CONTRACTS The Nature of a Contract A ** is any agreement enforceable by law. Not all agreements are contracts, however. Whether or not it s a contract, depends on the of the agreement. The Three Theories of Contract Law The evolution of contract law shows how its has changed. The Equity Theory In the past, courts asked whether the parties to a contract exchanged things of equal value. This approach was called the theory of contract law. The 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 will. The Formalist Theory Then the courts began to study the parties actions and words to determine if there was a meeting of the. This led to certain fixed elements in a contract. It is called the theory because it relies on the form of the agreement. Elements of a Contract There are six elements of a contract. 1. offer 2. acceptance 3. genuine agreement 4. consideration 5. capacity 6. legality An ** is a proposal by one party to another intended to create a legally binding agreement. An ** is the second party s unqualified willingness to go along with the first party s proposal.

2 If a valid offer is met by a valid acceptance, a ** exists. ** is the legal ability to enter a contract. ** is the exchange of things of value. ** means that people can only enter into contracts for legal purposes. People cannot enter into contracts to commit illegal acts. Characteristics of a Contract Contracts can have any of the following characteristics valid, void, voidable, or unenforceable express or implied bilateral or unilateral oral or written Valid, Void, Voidable, or Unenforceable A valid contract is binding. A contract that is ** has no legal effect. When a party to a contract is able to void or cancel the contract for some legal reason, it is a **. An ** contract is one the court will not uphold. Express or Implied An ** is stated in words and may be either oral or written. An ** comes about from the actions of the parties. Bilateral or Unilateral A ** contains two promises. A ** contains a promise by only one person to do something, if and when the other party performs some act. Oral or Written An oral contract is created by word of mouth and comes into existence when or more people form a contract by to each other. Sometimes, however, it is desirable to put contracts in. SECTION 5.2 OFFER AND ACCEPTANCE Requirements of an Offer The person who makes an offer is the. The person who receives the offer is the.

3 An offer has three basic requirements. It must be: 1. made seriously 2. definite and certain 3. communicated to the offeree Serious Intent An offer must be made with the intention of entering into a obligation. An offer made in the heat of or as a joke would not meet this requirement. Sometimes an invitation to can be confused with an offer. Advertisements in newspapers, magazines, and catalogs are examples of **, which are invitations to make an offer. Definiteness and Certainty An offer must be definite and to be enforceable. Offers that use words or terms that cannot be quantified lack definiteness and certainty. Communication to the Offeree Offers may be made by any method that communicates the offer to the offeree, including letter telegram fax machine cell phone Requirements of an Acceptance To be legally binding, the acceptance must meet certain basic requirements. the acceptance must be the acceptance must follow the regarding the method of acceptance Unconditional Acceptance The acceptance must not the terms of the original offer in any way. This principle is called **. Any change in the terms of the offer means the has not really accepted the offer. The offeree has made a **. If a counteroffer is made, the original offeror is obligated to go along and no contract exists. The offeror becomes an and may accept or reject the counteroffer. Contracts for the sale of goods are to the mirror image rule.

4 These exceptions include contracts for personal such as clothing, furniture, food, motor vehicles, and appliances. Methods of Acceptance The at which an acceptance takes place is important because that is when the contract comes into existence. Special rules govern acceptances that take place when the parties are separated by a and must be communicated by letters, telegrams, or fax. According to common law, an acceptance that must be sent over long distances is effective when it is. An acceptance is implied when the offeree accepts by the same or a means than that used by the offeror. The authorization of an acceptance can also be implied by any reasonable means, including practices between the parties the method in the trade customary means in comparable transactions Termination of an Offer Termination of an offer may occur in any of the following five ways. 1. revocation 2. rejection 3. counteroffer 4. expiration of time 5. death or insanity Revocation ** is the taking back of an offer by the offeror. The offer is withdrawn BEFORE the offer was accepted. Rejection **, or refusal, of an offer by the offeree brings the offer to an end. Counteroffer A counteroffer the first offer. The offeree creates a offer, which the original offeror may accept or reject. Expiration of Time If the offeror sets a time limit for the acceptance of the offer, it must be.

5 If no time limit is stated, it must be accepted within a time. Death or Insanity If the offeror dies or becomes insane before the offer is accepted, the offer comes to an. Section 5.1 True/False Chapter 5 Assignment How Contracts Arise Indicate whether each of the following statements is True or False. Write out the word. 1. You create a contract any time you agree to exchange things of value. 2. A valid contract must contain at least four of the six elements of a contract. 3. Any agreement to do something illegal is considered void. 4. People often enter into contracts without exchanging a single word. 5. An express contract is stated in words only. 6. If you wait too long to bring a lawsuit for breach of contract, the statute of limitations may have run its course, making it unenforceable. Section 5.1 You re the Judge For each of the following cases, indicate your decision (Yes, No). Then, in your own words, state the ethical or legal principle or reason that applies in the case. 1. Anne Samuels offered John Goodwin $25 if Goodwin would polish her car. Goodwin said nothing but started to work and polished the car. Is there a contract? Explain what kind of contract. 2. Annette Ramey, a sales representative for the Carlin Boat Company, wrote to Harry Duffin, offering to sell him a boat for $600 and agreeing to hold the offer open for one week. Two days later, before Duffin made an acceptance, the boat company withdrew its offer. Could the company legally do this? Explain. Section 5.1 Assessment Questions On your own paper, write or type your answers to Assessment questions 1-5 page 113. Keep it for your Unit packet.

6 Section 5.2 True/False Indicate whether each of the following statements is True or False. Write out the word. 1. The offeree is the person who makes an offer. 2. The offeror is the persons who receives the offer. 3. An offer must be made with the intention of entering into a legal obligation. 4. An offer can have vague words or terms in it and can still be considered an offer. 5. An offer can be made through many means of communications such as over the telephone. 6. The acceptance must be unconditional. 7. If a counteroffer is made, the original offeror is not obligated to go along and no contract exists. 8. It does not matter what time the acceptance takes place. 9. A counteroffer ends the first offer. 10. If the offeror dies or becomes insane before the offer is accepted, the offer comes to an end. Section 5.2 You re the Judge For each of the following cases, indicate your decision (Yes, No). Then, in your own words, state the ethical or legal principle or reason that applies in the case. 1. Audrey Burns, a dealer in preowned cars, telephoned Sam Firman and offered to sell him a preowned car for $2,000. Firman told her he wanted to think it over and would let her know later. That afternoon Firman sent Burns a letter by express mail saying that he would buy the used car. Did this result in a valid contract? Explain. 2. Brad Keefer wrote to Earl Ramirez offering to sell him the restaurant that Keefer owned. Ramirez wrote back to Keefer accepting the offer. He mailed the letter of acceptance on March 17 at 10:30 a.m., and Keefer received it on March 18 at 11:00 a.m. Keefer had decided to revoke his offer, however, and had mailed a second letter to Ramirez on March 16 at 11:00 a.m., which stated his decision to revoke. Ramirez received this letter on March 17 at 10:00 a.m. Was there a contract? Explain. Section 5.2 Assessment Questions On your own paper, write or type your answers to Assessment questions 1-5 page 121. Keep it for your Unit packet.

requires a + = WHAT IS IN A CONTRACT? by to another to create.

requires a + = WHAT IS IN A CONTRACT? by to another to create. UNIT 3 CONTRACTS NBEA STANDARD II: Analyze the relationships between contract law, law of sales, and consumer law. OBJECTIVE: Develop an understanding of contracts: distinguish between express and implied