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Contract BasicsContract Basics
Business Law
From tort law to contract law
Tort Contract
What binds individuals
Laws of society, as defined by statutes and precedents
Specific Agreements
Who is bound Groups of people (often, everybody) who have a duty
The specific individuals who willfully enter into the agreement, thereby creating a duty for themselves
A contract is an agreement between two or more persons to exchange something of value.
What do you think needs to be in a
contract????
Elements of a Contract• Offer – proposal by 1st party• Acceptance – 2nd party agrees• Genuine Agreement – “meeting of the
minds”• Consideration – thing of value exchanged• Capacity - >=18 and able to understand• Legality – Has to be for a legal venture!~
Offer
Capacity
Accep
tanc
e
Capacity
Genuine Agreement
Consideration
Contract (Legality)
Contract Formula
Characteristics of Contracts
• Valid – legally good• Void – has no legal effect• Voidable – when a party is able to
cancel a contract• Unenforceable – a contract the
court won’t uphold
• Express– Stated in words or spoken– Oral or written
• Implied– Comes from the actions of the parties
Characteristics of Contracts
• Bilateral– Contains two promises
• Unilateral– Contains a promise by only one
person to do something, if and when the other person performs an act
Characteristics of Contracts
• Oral• Written• Some contracts are only valid if
they are in writing
Characteristics of Contracts
To Write or Not to Write• Contracts for the sale of land or real
estate• Contracts to pay deceased person’s
debts• Contracts for the sale of goods priced at
$500 or more• Agreements to pay another person’s
debt• Agreements that cannot be performed
within a year from the date of the agreement
• Contracts in consideration of marriage
Offer1. Made seriously• Made with the intention of entering
into a legal obligation• Newspaper ads – invitation to
negotiate
2. Definite and certain3. Communicated to the offeree• How? Example on page 116
Acceptance• Time at which a contract comes
into existence• Unconditional Acceptance
– Mirror Image Rule– Counteroffer
• Method of Acceptance– Accepted by an action– Implied when the offeree accepts by
the same or faster means than the offer
Termination of the OfferNot the same as termination of contract1. Revocation• Taking back of offer by the offeror
2. Rejection• Refusal of offer by offeree
3. Counteroffer4. Expiration of Time• Stated in offer• Reasonable amount of time
5. Death or Insanity
Capacity• The legal ability to enter a
contract• Must be 18 or over• Have to be able to understand
what you’re getting into
Minority v. Majority• Minor - <18• Misrepresenting your age = fraud• A minor can void a contract
– Must return merchandise– Disaffirm the whole contract
• After reaching 18 can “ratify” contract
• Contracts for necessities• Minors can be held to these contracts
Capacity – cont’d• Other individuals who lack
capacity– Mentally impaired persons
• Have a Guardian appointed– Intoxicated persons– People with a condition that prevents
them from understanding• Alzheimers, Dementia, etc.• Also have a guardian or POA appointed
Consideration• Item of value that is exchanged• Benefits & Detriments – each
party gives something up; each party receives something– Example – I buy your car for $1000;
you give up your car & receive $1000; I give up $1000 & receive your car
Characteristics of Consideration
• Bargained-for exchange• Something of value• Benefits and detriments promised
must be legal
Types of Consideration• Money• Property/Services• Promise not to…• Charitable Pledges
Legality• Agreements that violate statutes• Agreements contrary to Public
Policy• Effect:
– Court will not aid either party to an illegal contract
Contract FormulaCapacity
Capacity
Acceptance
Offer
ConsiderationContract(Legality)
GenuineAgreement
How Contracts End• Discharge by Performance• Discharge by Agreement• Discharge by Impossibility of
Performance• Discharge by Operation of Law
Discharge by Performance
• Time for performance• Satisfactory performance• Substantial performance• Tender of performance
Discharge by Agreement
• Mutual agreement• Accord and satisfaction
Discharge by Impossibility of Performance
• Death or illness in a personal service contract
• Destruction of the exact subject matter
Discharge by Operation of Law
• Wrongful alteration• Statute of limitations• Bankruptcy
Transfer of Contract• Transfer duties• Transfer rights• Beneficiary • All rights can be assigned unless:
– Contract is Person specific– Stated in the contract
Breach of Contract• One party to a contract fails to
perform the duties set out in the agreement
• Acceptance of Breach or Remedies
Damages• Money Damages• Actual/Incidental Damages• Liquidated Damages
Minimizing Damages• Injured party must take reasonable
steps to minimize their damages
Remedies for Breach of Contract
• Money Damages• Specific Performance
• Injunction
Contract BasicsContract Basics
Business Law