Section 5.1 Contracts
What You’ll Learn
How to identify a contract’s elements (p. 108)
How to identify valid, void, voidable & unenforceable
contracts (p. 110)
How to distinguish between express & implied
contracts (p. 111)
How to identify unilateral & bilateral contracts (p.
111)
How to distinguish between oral & written contracts
(p. 112)
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Why It’s Important
Identifying a contract’s elements will help you manage
your affairs in an intelligent and effective manner.
Legal Terms
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Legal Terms
contract (p. 106)
offer/acceptance (p. 109)
genuine agreement (p. 109)
capacity (p. 109)
consideration (p. 109)
legality (p. 109)
void/voidable contract (p. 110)
unenforceable contract (p. 111)
express/implied contract (p. 111)
bilateral/unilateral contract (pp. 111, 112)
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section Outline
Understanding Contract Law
The Nature of a Contract
The Three Theories of Contract Law
The Elements of a Contract
Characteristics of a Contract
Valid, Void, Voidable, or Unenforceable
Express or Implied
Bilateral or Unilateral
Oral or Written
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Pre-Learning Question
How would you define contract?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
The Nature of a Contract
A contract is any agreement
enforceable by law.
Not all agreements are contracts,
however.
Whether or not it’s a contract,
depends on the circumstances of
the agreement.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
The Three Theories of
Contract Law
The evolution of contract law shows
how its focus has changed.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
The Equity Theory
In the past, courts asked whether the
parties to a contract exchanged things
of equal value. This approach was
called the equity theory of contract
law.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
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 free will.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
The Formalist Theory
Then the courts began to study the
parties’ actions and words to determine if
there was a “meeting of the minds.”
This led to certain fixed elements in a
contract. It is called the formalist theory
because it relies on the form of the
agreement.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Elements of a Contract
There are six elements of a contract.
1. Offer
2. Acceptance
3. Genuine agreement
4. Consideration
5. Capacity
6. Legality
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Elements of a Contract
An offer is a proposal by one party
to another intended to create a
legally binding agreement.
An acceptance is the second
party’s unqualified willingness to go
along with the first party’s proposal.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Elements of a Contract
If a valid offer is met by a valid
acceptance, a genuine agreement
exists.
Capacity is the legal ability to enter
a contract.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Elements of a Contract
Consideration is the exchange of
things of value.
Legality means that people can
only enter into contracts for legal
purposes. People cannot enter into
contracts to commit illegal acts.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Pre-Learning Question
What is one characteristic that you
think a contract must have?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
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
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Valid, Void, Voidable,
or Unenforceable
A valid contract is legally binding.
A contract that is void has no legal
effect.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Valid, Void, Voidable,
or Unenforceable
When a party to a contract is able to
void or cancel the contract for some
legal reason, it is a voidable
contract.
An unenforceable contract is one
the court will not uphold.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Express or Implied
An express contract is stated in
words and may be either oral or
written.
An implied contract comes about
from the actions of the parties.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Sarah paid Isabel $50 to hack into
Mrs. Wojcik’s computer files for a copy
of the upcoming final exam, but Isabel
gave Sarah the pre-test instead. Is
this contract valid, void, voidable, or
unenforceable?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
ANSWER
Void. It has no legal affect.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Bilateral or Unilateral
A bilateral contract contains two
promises.
A unilateral contract contains a
promise by only one person to do
something, if and when the other
party performs some act.
Understanding Business and Personal Law
How Contracts Arise
5.1
Section
5.1 Contracts
How Parties Reach Agreement
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Oral or Written
An oral contract is created by word
of mouth and comes into existence
when two or more people form a
contract by speaking to each other.
Sometimes, however, it is desirable
to put contracts in writing.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
1. What are the elements of a
contract?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
Offer, acceptance, genuine agreement,
capacity, consideration, and legality.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
2. What are the differences among
valid, void, voidable, and
unenforceable contracts?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
A valid contract is legally binding.
An unenforceable contract will not be
upheld generally by the court because of
some rule of law.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
A contract that is void has no legal effect
and a voidable contract is not void in itself,
but may be voided by one or more of the
parties if the party so chooses.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
3. What are the differences between
express and implied contracts?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
An express contract involves words, while
an implied contract does not.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
4. What are the differences between
unilateral and bilateral contracts?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
A unilateral is a one-sided contract, in
which one party makes a promise in
exchange for an act. In a bilateral contract,
a contract legally comes into existence
when promises are exchanged.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
5. What are the differences between
oral and written contracts?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Reviewing What You Learned
Answer
Oral contracts are spoken. Written
contracts are in writing.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Critical Thinking Activity
History
How did the Industrial Revolution change
the court’s attitude toward interpreting
contract law?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Critical Thinking Activity Answer
History
The industrial revolution and the need to support
a profit-making system required that the courts
shift their focus from contract fairness to whether
the parties had actually agreed to the terms set
forth in the agreement and whether they had
reached a “meeting of the minds.”
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Legal Skills in Action
Elements of a Contract
Your friend, Arkadi, has begun teaching
contract law classes at a local senior
citizens center.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Legal Skills in Action
Elements of a Contract
Write a paragraph in which you explain the
six elements of a contract in such a way
that will help Arkadi create his course
outline.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Legal Skills in Action
Elements of a Contract
Remember to include information on the
historical development of the will theory,
which led to the need to develop the six
elements included within the formalist
theory of contract law.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Section 5.1 Assessment
Critical Thinking Activity Answer
Elements of a Contract
Paragraphs will vary, but should include
discussion of the six elements that make
up a contract.
Understanding Business and Personal Law
How Contracts Arise
Chapter
5
SECTION OPENER / CLOSER:
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End of Section 5.1
Contracts