Section 5.1 Contracts
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Chapter 4 Quiz
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Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
BELL QUIZ ON CHAPTER 4
1. What’s the difference between a crime and a
tort? Explain both.
2. What tort interferes with the enjoyment of life or
property?
3. Name the two types of defamation.
4. When must the words “reasonable person” be
used?
5. Name one ultrahazardous activity.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
ANSWERS TO BELL QUIZ CHAPTER 4
1. Crime harms individual as well as general welfare
(offense against public at large). Tort is a private wrong
committed by one person against another.
2. Nuisance
3. Libel and Slander
4. When instructing the jurors.
5. Explosives, wild animals, storing highly flammable
liquids in densely populated areas.
Understanding Business and Personal Law
How Contracts Arise
Chapter
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Section 5.1
Contracts
Section
5.1
How Contracts Arise
Chapter 5Contracts
Section 5.1
Contracts
Section 5.2
Offer and Acceptance
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.
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.”
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
The Formalist Theory
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
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
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
5.1
Section
5.1 Contracts
How Parties Reach Agreement
A REWARD OFFER is one of the most common
instances of a unilateral contract.
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
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Understanding Business and Personal Law
How Contracts Arise
Chapter
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Section 5.2
Offer
and Acceptance
Contracts
Section 5.1 Contracts
Why It’s Important
You need to know when an offer has been
made and when an acceptance goes into
effect to make sound contracts.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Requirements of an Offer
The person who makes an offer is
the offeror.
The person who receives the offer
is the offeree.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Requirements of an Offer
An offer has three basic requirements.
It must be:
1. made seriously
2. definite and certain
3. communicated to the offeree
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Serious Intent
An offer must be made with the
intention of entering into a legal
obligation.
An offer made in the heat of anger
or as a joke would not meet this
requirement.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Serious Intent
Sometimes an invitation to negotiate
can be confused with an offer.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Serious Intent
Advertisements in newspapers,
magazines, and catalogs are
examples of invitations to negotiate,
which are invitations to make an offer.
Exception to rule: “first come, first served”
or limit number of items that will be sold is
considered an offer.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Definiteness and Certainty
An offer must be definite and
certain to be enforceable.
Offers that use vague words or
terms that cannot be quantified lack
definiteness and certainty
(reasonable; pay “a share”)
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Communication to the Offeree
Offers may be made by any method
that communicates the offer to the
offeree, including
telephone
fax machine
letter
e-mail
telegram
cell phone- text???
Example 5 – page 116
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Who or what is an offeree?
Who or what is an offeror?
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
ANSWER
The offeree is the person making the
offer.
The offeror is the person receiving
the offer.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Requirements of an Acceptance
To be legally binding, the acceptance
must meet certain basic requirements.
the acceptance must be
unconditional (terms not changed)
the acceptance must follow the
rules regarding the method of
acceptance
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Unconditional Acceptance
The acceptance must not change
the terms of the original offer in any
way.
This principle is called the mirror
image rule.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Unconditional Acceptance
Any change in the terms of the offer
means the offeree has not really
accepted the offer.
The offeree has made a
counteroffer.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Unconditional Acceptance
If a counteroffer is made, the
original offeror is not obligated to go
along and no contract exists.
The offeror becomes an offeree and
may accept or reject the
counteroffer.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Unconditional Acceptance
Contracts for the sale of goods are
exceptions to the mirror image
rule.
These exceptions include contracts
for personal property such as
clothing, furniture, food, motor
vehicles, and appliances.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Methods of Acceptance
The time at which an acceptance
takes place is important because that
is when the contract comes into
existence.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Methods of Acceptance
Special rules govern acceptances that
take place when the parties are
separated by a distance and must be
communicated by letters, telegrams,
or fax.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Methods of Acceptance
According to common law, an
acceptance that must be sent over
long distances is effective when it is
sent.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Methods of Acceptance
An acceptance is implied when the
offeree accepts by the same or a
faster means than that used by the
offeror.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Methods of Acceptance
The authorization of an acceptance
can also be implied by any reasonable
means, including
past practices between the parties
the usual method in the trade
customary means in comparable
transactions
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Termination of an Offer
Termination of an offer may occur in
any of the following five ways.
1. revocation
2. rejection
3. counteroffer
4. expiration of time
5. death or insanity
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Revocation
Revocation is the taking back of an
offer by the offeror.
The offer is withdrawn BEFORE the
offer was accepted.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Rejection
Rejection, or refusal, of an offer by
the offeree brings the offer to an end.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Counteroffer
A counteroffer ends the first offer.
The offeree creates a new offer,
which the original offeror may
accept or reject.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Expiration of Time
If the offeror sets a time limit for the
acceptance of the offer, it must be
honored.
If no time limit is stated, it must be
accepted within a reasonable time.
Understanding Business and Personal Law
How Contracts Arise
Section 5.1 Contracts
Death or Insanity
If the offeror dies or becomes insane
before the offer is accepted, the offer
comes to an end.
End of Chapter
Understanding Business and Personal Law
How Contracts Arise