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Contract Law

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  1. Contract Law Chapter 6

  2. What Must be in a Contract? • Offer and acceptance • Genuine assent • Legality • Consideration • capacity • Writing

  3. Offer and Acceptance • Three tests that a valid offer must pass: • Contractual intent must be present • Offers made in jest, in extreme terror or anger, or as a preliminary negotiation or social agreement ARE NOT OFFERS • The offer must be communicated to the offeree • A person who is not the intended offeree cannot accept the offer • The essential terms of the offer must be complete and definite • Must, at minimum, include price, subject matter, and quantity • Term must be identified clearly

  4. Offer and Acceptance • To create an enforceable contract the acceptance must: • Come from the person or persons to whom the offer is made • Offer made to one person cannot be accepted by another • Match the terms of the offer • Mirror image rule—acceptance must exactly match the terms contained in the offer • Be communicated to the offeror • Silence is not acceptance • Bilateral contracts—offer implies that it can be accepted by giving a promise instead of performing the contracted-for act • Unilateral contracts—offeror promises something in return for the offeree’s performance and indicates that this performance is the way acceptance is to be made

  5. Offer and Acceptance • Modes of Contractual Communication • Offers, acceptances, rejections, revocations, and counteroffers may generally be communicated in person or other effective means • Telephone • Mail • Delivery service • Email • Fax

  6. Offer and Acceptance • When Acceptances are Effective • All forms of contractual communications but one take effect only when received • Acceptance takes effect when it is sent • The offeror may require the offeree to use a certain communication method • If a different communication method is used then it is treated as a modification to the offer • Business custom often implies a method to be used in an acceptance • Most courts say the acceptance is effective when sent by the same means used for the offer, or by faster means

  7. Offer and Acceptance • When Acceptances are Effective • Oral acceptances are effective at the moment the words are spoken directly to the offeror • Acceptances sent by mail generally take effect when properly posted • Placed with correct address and proper postage under the control of the U.S. postal service • Telegram takes effect as an acceptance when it is handed to the clerk at the telegraph office or telephoned to a telegraph office • Fax transmission is instantaneous when the transmission lines are open and both sending and receiving equipment work properly • The offeror may specify that an acceptance will not be binding until it is actually received • Avoids confusion

  8. Genuine Assent • The agreement (offer and acceptance) must not be based on: • One party’s deceiving another • on an important mistake • on the use of unfair pressure exerted to obtain the offer or acceptance

  9. Legality • What the parties agree to must be legal • An agreement to pay someone to commit a crime or a tort cannot be a contract

  10. Consideration • The agreement must involve both sides receiving something of legal value as a result of the transaction • Requirements: • Each party must give an act, forbearance, or promise to the other party • Each party must trade what they contribute to the transaction for the other party’s contribution • What each party trades must have legal value—must be worth something in the eyes of the law

  11. Capacity • The parties must be able to contract for themselves rather than being forced to use parents or legal representatives • Those who lack capacity: • Minors • Mentally incapacitated • Intoxicated – drugs or alcohol • Minimum age to contract is 18

  12. Writing • Some agreements must be placed in writing to be fully enforceable

  13. How can offers be ended? • Revocation by the Offerer • The offeror can generally revoke an offer anytime before it is accepted by the offeree • Not effective until it is communicated to the offeree • Time Stated in the Offer • The offeror may state how and when the offer must be accepted

  14. How can offers be ended? • Reasonable Length of Time • When nothing is said in the offer about how long it will remain open, it will end after a reasonable length of time • To avoid misunderstandings, the time available for acceptance should be specified at the outset • Counteroffer • The offeree changes the offeror’s terms in important ways and sends it back to the offeror • The counteroffer terminates the original offer--Becomes the new offer

  15. How can offers be ended? • Death or Insanity of either the offeror or the offeree • The law acts for these parties when they can no longer act and terminates the offer • Destruction of the Specific Subject Matter • If the offer refers to specific subject matter and it is subsequently destroyed, the offer is automatically terminated

  16. How can an offer be kept open? • Options • If the offeree gives the offeror something of value in return for a promise to keep the offer open • This agreement in itself is a binding offer • The offer may not be withdrawn during the period of the option • Firm Offers • Works the same way as an option • Applies to merchants who make offers in writing • Contains terms stating how long the offer is to stay open • The Uniform Commercial Code makes firm offers binding for the time stated, but not more than 3 months • Applies even if nothing is paid by the offeree