Contract Basics Business Law. From tort law to contract law TortContract What binds individuals Laws...

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