Chapter 7 – How
Contracts Arise
Personal and Business Law
Mr. Ulmer Rm. 112
Definition
Contract – is any agreement
enforceable at law
Elements of a Contract
Offer
Acceptance
Genuine Agreement
Consideration
Capacity
Legality
-Figure 7-1 (p. 93)
Offer
A proposal made by one party
(the offeror) to another party
(the offeree) indicating a
willingness to enter a contract
Example: “I will give you $100 to
wear this t-shirt all day at work.”
Acceptance
The agreement of the offeree to
be bound by the terms of the
offer
Example: “I accept the offer. I
will wear the t-shirt all day while I
am at work.”
Genuine Agreement
 Offer and acceptance go together to
create genuine agreement, or a meeting of
the minds
 Agreement can be destroyed by:
 Fraud
 Misrepresentation
 Mistake
 Duress
 Undue influence
Consideration
The thing of value promised to
the other party in a contract in
exchange for something else of
value promised by the other
party
Mutual exchange binds the
parties together
Capacity
The law presumes that anyone
entering a contract has the legal
capacity to do so
People excused from contractual
responsibility may include:
Minors
Mentally incompetent individuals
Drugged or drunk individuals
Legality
Parties are not allowed to enforce
contracts that involve doing
something that is illegal
Some illegal contracts involve
agreement to commit a crime or
tort
Others involve activities made
illegal by statutory law
Importance of Elements
To be legally complete, a
contract must include these six
elements.
What if one of the elements is
missing?
A valid contract does not exist
Characteristics of Contracts
4 Categories of Contracts
1) Valid, void, voidable, or
unenforceable
2) Express or implied
3) Bilateral or unilateral
4) Oral or written
 Any one contract may have 1 or
more of these 4 categories
Valid, Void, and Voidable
Valid – means legally good, which
is legally binding
Void – means no legal force,
which has no legal effect
whatsoever
Voidable – When a party is able to
void or cancel a contract for some
legal reason, a contract is
“voidable”
Unenforceable
Some rule of law that cannot
enforce the contract in court.
Statute of Limitations
Example 1 (p. 94)
Express, Implied
An express contract is stated in
words and may be either oral or
written.
An implied contract is one that
comes about from the actions of
the parties.
Example 2 (p. 94)
Bilateral, Unilateral
 Bilateral – is a contract that contains two
promises – one from each person.
Lloyd: “I will sell you my PS4 for $300”
Harry: “I will buy it”
 Unilateral – One promise only. One
person promises to do something in
exchange for the other person’s
promise to do something.
Oral, Written
Oral contract is created by word
of mouth. Must be at least two
people speaking for contract to
come into existence
Written contract is desirable since
it allowed the parties to know the
exact terms of the contract and
provide proof agreement was
made.
Requirements of an Offer
An Offer’s Three Basic Requirements:
1) It must be seriously intended
2) It must be definite and certain
3) Must be communicated to the
offeree
Requirements of an
Acceptance
The unqualified willingness to go
along with the offer
Basic Requirements for an
Acceptance:
1) Unconditional Acceptance
2) Methods of Acceptance
Termination of an Offer
Revocation – the taking back of an
offer by the offeror
Rejection – rejection or refusal of
an offer by the offeree
Counteroffer – Any change in the
terms of the offer by the offeree
Termination of an Offer
Expiration of Time
If offeror puts a time limit for the
acceptance of an offer, the
offer may be terminated
Death or Insanity
If offeror dies or becomes insane
before offer is accepted, the
offer comes to an end