© 2011 South-Western | Cengage Learning GOALS LESSON 2.1 CONTRACT LAW BASICS Name the six essential elements of a legally enforceable contract Identify

© 2011 South-Western | Cengage Learning

GOALS

LESSON 2.1

CONTRACT LAW BASICS

Name the six essential elements of a legally enforceable contract

Identify ways to classify contracts


BUSINESS LAW, 2e LESSON

SLIDE 2

2.1

What is a Contract?A contract is an agreement between two

or more parties that creates an obligation.



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2.1Elements of a Legally Enforceable Contract

1. Agreement comprised of an offer and an acceptance

2. Supported by consideration3. Made by parties with capacity to contract4. Genuinely assented to5. For a legal purpose6. In writing when required



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2.1Terms for Understanding ContractsExpress, implied, and quasi contractsValid, voidable, and void contractsExecuted and executory contractsUnilateral and bilateral contracts



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2.1Express, Implied, and Quasi Contracts The terms of an express contract are set down in a

clear-cut fashion, either orally or in writing. The terms of an implied contract are not stated; they

are determined from the surrounding circumstances or an established pattern of dealings.

A quasi contract is best viewed as a remedy that the courts utilize to return value to someone who has enriched another person in the absence of an express or implied contact between them.



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2.1Valid, Voidable, and Void ContractsA valid contract is one that is legally

binding and enforceable.A voidable contract is a contract whose

legal effect can be cancelled by one or more of the parties to it.

A void contract is one that has no legal effect whatsoever.



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2.1Executed and Executory ContractsAn executed contract is one that all

parties have fully performed.An executory contract is one in which

some performance has yet to be delivered.



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2.1

Unilateral and Bilateral ContractsA bilateral contract is one that obligates

all parties to it to perform according to their promises.

A unilateral contract is one in which one party may be obligated to fulfill a contractual promise and then only if another party performs.



SLIDE 9

2.1

Other Contractual Terms An offer is a proposal of a bargain or exchange to

another party or parties. The person making the offer is termed the offeror. The person to whom it is made is termed the offeree. The promisor is the maker of a promise. The promisee is the person to whom the promise is

made. The obligor is the person who must fulfill an obligation. The obligee is the person to whom the obligor is

obligated.


GOALS

LESSON 2.2

OFFER AND ACCEPTANCE

Explain how to create a valid offerDescribe the various ways an offer can be

terminated before acceptanceRecognize the importance of acceptance

and consideration to contract formation



SLIDE 11

2.2

The OfferGenerally, to create a valid offer the

following must occur:1.1. The offeror must appear to intend to create

a legal obligation.2.2. The terms must be complete and definite.3.3. The offer must be communicated to the

offeree.



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2.2Intent to Create a Legal ObligationTest of the reasonable observerInvitations to negotiate



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2.2

Offer Must Be CompleteIf an offer is missing essential information,

it is incomplete and legally ineffective. Nearly all offers must identify the price,

subject matter, and quantity, either directly or indirectly.

The amount of essential information to include depends upon the complexity of the transaction.



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2.2

Offer Must Be DefiniteEach essential term must be identified

clearly in order for the courts to enforce an agreement.

In some contracts, however, a term might be implied by law or common business practice.



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2.2Offer Must Be Communicated to the OffereeA person who is not the intended offeree

cannot accept the offer. Nor can a person accept an offer without

knowing it has been made.



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2.2Possible Termination of the Offer before AcceptanceRevocationExpiration of a set period or a reasonable

timeRejection by the offereeCounteroffersOther circumstances



SLIDE 17

2.2

Acceptance and ConsiderationAn acceptance is the agreement by an

offeree to the terms of the offer.Consideration is what the offeror

demands, and generally must receive, in order to make the offer legally enforceable.



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2.2Three Requirements of Consideration1.1. It must at least entail the making of a promise,

performance of an act, or a forbearance from acting.

2.2. Each party’s consideration must be in exchange for consideration given by the other party.

3.3. What each party exchanges must have legal value; that is, it must be worth something in the eyes of the law.


GOALS

LESSON 2.3

CAPACITY TO CONTRACT

Determine if someone has the capacity to contract

Identify when apparent assent to a contract is not genuine



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2.3

Capacity to ContractContractual capacity is the ability to

understand the consequences of a contract.

The law does not require the actual understanding, just “the ability to understand.”



SLIDE 21

2.3

Lack of Contractual CapacityMinorsMental incapacityIntoxication



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2.3

Lack of Genuine AssentMistakeConcealmentMisrepresentation and fraudUndue influence and duressUnconscionability


GOALS

LESSON 2.4

LEGALITY OF CONTRACTS

Identify contracts that are illegalRecognize when a writing is required to

prove a contract



SLIDE 24

2.4

Legality of ContractsFour basic indicators to tell when a contract is

unenforceable due to problems with legality: Statutes sometimes explicitly state that certain

contracts are unenforceable.Courts look at the impact on public welfare of a

violation of a statute related to the contract. Courts look at how directly the contract and the

violation of the statute are connected. Courts look at how involved the parties are in the

violation of a statute.



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2.4

Illegal ContractsIllegal gamblingUsurious interestIllegal discriminationObstruction of legal proceduresLack of required competency licenseNegative effects on marriageUnreasonable restraint of trade



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2.4

Unreasonable Restraint of TradePrice fixingResale price maintenanceAllocation of marketsCovenants not to compete



SLIDE 27

2.4When a Written Contract Is RequiredThe law in most states identifies distinct

situations in which, should one party to such a contract deny its existence, a written contract signed by that party is required to enforce the contract.

Typically, a law called the statute of frauds specifies the situations that require a writing.



SLIDE 28

2.4Situations that Require a Written Contract 1.1. When a right or interest in real property is being

transferred.2.2. When the contract cannot be performed within a year.3.3. When a sale of goods valued at more than $500 is

involved.4.4. When someone makes a promise to a creditor to stand

good for the debts of another. 5.5. When someone in charge of an estate makes a promise

to stand good for the estate’s debts.6.6. When promises other than the exchange of the

traditional vows are given in consideration of marriage.

Documents

© 2011 South-Western | Cengage Learning GOALS LESSON 2.1 CONTRACT LAW BASICS Name the six essential elements of a legally enforceable contract Identify