Chapters 7-8 - Contracts - Introduction & Agreement; Consideration, Capacity, & legality Chapter 7-8 A* We now are getting into contracts. Chapter 7 covers a basic introcution to contract law and details about the "agreement" portion. Chapter 8 covers consideration, capacity and legality.

The reason that we have contract law is to ensure that people keep their promises. Throughout the next several chapters, you will see lots of words that end in -or and -ee. For example, in contracts, there is a promisor and a promisee. The promisor is the one initiating the act and the promisee is the one receiving the act or promise. Contracts are simply agreements that can be enforced in a court of law. There are some contracts that have special requirements to be enforced, but there are others that do not. A common misconception with contracts is that it must be in writing in order to be enforceable. THAT IS NOT TRUE. Oral contracts are often enforceable in a court of law.

It is important to note in contract law, that the courts use a "reasonable person" standard in interpreting contracts. It does not matter what the parties actually thought (subjective intent) because the court will look at how a reasonable person would have interpreted the terms of the contract.

In order to form a valid contract you must have four elements present. I will discuss each in turn:

1) AGREEMENT. An agreement includes an offer and acceptance. An offer must be a) communicated by the offeror to the offeree b) have reasonably certain terms so that the parties can understand the contract and c) it must be a serious, objective intention by the offeror. If an offer is intended for Jane, Bob does not have the ability to accept the offer. It must be directed at Bob and communicated to Bob in order for him to be able to accept it.

The following things are not offers:

- I think my car is worth $3,000.00. (Statement of opinion)

- I intend to sell my car. (Statement of future intent)

Would you be interested in buying my car if I sold it? (preliminary negotiations)

Will you agree to buy my car for $5,000.00 next June if I decide to sell it? (agreement to agree).

- I will sell you my car. (not definite enough - no amount or date)

The offer can be terminated by the offeror. If the offeror revokes his offer before the offeree accepts the offer, the offer is no longer valid. If the offeree declines the offer, the offer is gone. If the offeree gives a counter offer, the original offer is void (a counter offer is a decline of the offer and a new offer all together). The offer can also be terminated if the subject matter of the offer is destroyed. I offer to sell you a horse for $1,500.00 and the horse dies. If I specify that you must accept the offer before Monday, the offer expires Monday and you cannot accept the offer on Tuesday (Tuesday you would be making a new offer to me if you attempted to accept my offer).

In order to accept an offer, you must be unequivocal and do it in a means that is authorized under the offer. If the offer does not specify what the means of acceptance is, it must be reasonable means. The "mailbox rule" says that as soon as an acceptance is put into the mail, it is effective and there is a contract. The mailbox rule applies only to acceptance. It does not apply to offers, revocation of offers nor does it apply to declining of offers. Only to acceptance. 2) CONSIDERATION. In order to have a legally valid contract, there must be legally sufficient consideration and a bargained for exchange. That simply means that you are agreeing to do something that you do not otherwise have an obligation to do or you are giving up something that you have the legal right to do. It must be bargained for meaning that you and the other party negotiated the terms and agree to the terms. As a general rule, so long as there is a bargained for exchange, the court will not get involved in whether or not you "paid enough" for something. The court will generally not say that there is not enough money exchanged. However, if there is a large disparity between the amount that you paid and the value of the good or service, it may get the court's attention in addressing that issue. That does not mean that the court will change the contract. Certain things are not consideration, for example: preexisting duty - you agree to do a roof for $5,000.00 and once you get all the shingles off, you demand another $3,000.00 to finish. The exception to this would be if there were unforeseen difficulties (rotten wood that was unexpected) and it actually will cost more or be more work that was originally bargained for.

- past consideration - You agree to mow your friends lawn. Later you ask for $50.00 for the work. It is too late to demand that or attempt to offer to do the work for money. you already did the work.

3) CONTRACTUAL CAPACITY. Both parties to a contract must have the ability to enter into a contract. If a person has been adjudged by a court as incompetent, they do not have the ability to enter into a contract. (that contract is VOID - no contract at all) I minor DOES have the ability to enter into a contract, but that contract is VOIDABLE at the option of the minor only). If a minor enters into a contract, they generally have the ability to disaffirm (get out of it) anytime before their 18th birthday or for a reasonable time thereafter. If a minor continues to pay under a contract for a period of time after the age of 18, a court would likely deem that they had ratified the contract and they will not be able to get out of it after that time. An intoxicated person has the ability to enter into a contract so long as they understand the legal consequences of the contract.

4) LEGALITY. A contract must be for a legal purpose. A contract for the sale of illegal drugs is void. A contract to commit a crime is void. A contract for an illegal interest rate is void. A contract for legal services with a non lawyer would be void because there is a requirement that a person be licensed to do legal work.

BUS135 Chapter 7-8 1. What are the four basic requirements of a contract? (4 pts) 2. What is the difference between a unilateral and a bilateral contract? (4 pts) 3. Give an example of a bilateral contract AND a unilateral contract. (6 pts) 4. Give an example of an express contract AND an implied contract. (6 pts) 5. Describe the difference between a valid contract, a voidabie contract, an unenforceable contract and a void contract AND give one example of each. (8 pts) 6. What are the necessary elements of an offer?(3 pts) 7. What are the different ways an offer can terminate? (6 pts) 8. Describe the mailbox rule. (2 pts) 9. What is consideration? (2 pts) 10. Give four examples of things that are not legally sufcient consideration. (4 pts) 11. Can a minor enter into a contract? (1 pt) a. What is the status of the contract at the time the minor enters into it? (e.g. valid, void, voidable, enforceable, etc.) (1 pt) b. Can either party get out of the contract? (1 pt) c. If either party can get out of the contract, how do they do it? (2 pts) 12. What is an illegal contract? (2 pts) 13. Give three examples of an illegal contract. (3 pts) 14. Mike sends an offer to Jane via mail on July 1, 2006. Jane received the offer on July 4, I 2006. Mike sends a revocation of the offer in the mail on July 3, 2006 that is received by Jane on July 6, 2006. Jane sent an acceptance letter on July 5, 2006. Mike received the acceptance on July 7, 2006. Assuming all of the above facts are true, is there a contract? (1 pt). Explain why or why not. (4 pts)