Chapter 7 Elements of a Contract

Contract– a legal agreement between 2 or more parties that is enforceable at law

I. Elements of a Contract

  1. Offer– a proposal by one individual to another to enter into an agreement
    • Offerer– making offer
    • Offeree– receiving offer
    • Requirements of an offer:
      • Serious Intent– made with the intent to enter into an agreement
      • Definite and Certain– clearly expressed, can’t be vague
      • Communicated to offeree– method: telephone, fax, email, in person
  2. Acceptance– the unconditional willingness to go along with offer with no changes
    • Counteroffer– intrest in an offer which change is made by the offeree. Offerer can accept, reject, or make another counteroffer.
    • Methods of Acceptance:
      • If the acceptance is made using the same method as the offer, legal acceptance is immediate.
      • If the method is different, the acceptance must be recieved by offerer to be legal
  3. Genuine Agreement– “meeting of the minds”
    • What breaks a genuine agreement:
      • Fraud– deliberate deception
      • Misrepresentation– “innocent”
      • Mistake– error by one or both parties
      • Duress/undue influence– taken advantage of
  4. Consideration– the thing of value exchanged in a contract (a gift is not a contract- no consideration)
    • In every valid contract there must be:
      • Benefit x2
      • Detriment x2
  5. Capacity– The legal ability to enter into a contract based on:
    • Age
    • Mental state
    • Country citizenship status
  6. Legality– contracts will not be enforced when the “consideration” is illegal
    • “To commit a crime”

II. Characteristics of a Contract

  1. Valid– meets all the elements of a contract; Void– does not have one or more of the elements; Faulty; Voidable– can be voided or valid; Unenforcable– when the law/statute changes, a contract may be unenforceable
  2. Expressspecific in writing or oral that clearly states terms and intentions; Impliedassumed based on the actions of an individual(s)-(gas station, grocery store)
  3. Bilateral– contract that has the immediate exchange of benefits and detriments; Unilateral– any service agreement where completion is based on the acts of one party (service contracts)
  4. Oral– (is legal) Statute of Frauds (nationally), $500 is the limit to enforce verbal agreements (intent proves oral agreement); Written– Contracts over $500 must be in writing. Statute of Fraud also dictates which kind of contracts must be in writing. (Financial Investment, Real Estate, DMV Sale of Auto)

III. Requirement of an Offer

  1. Serious Intent– made with the intent to enter into an agreement
  2. Definiteness and Certainty– clearly expressed, can’t be vague
  3. Communication the Offeree– method: telephone, fax, email, in person

IV. Requirements of an Acceptance

  1. Unconditional Acceptance– “Mirror Image Rule” accepting the terms exactly the way they have been offered by the offeree (unchanged)
  2. Methods of Acceptance:
    • If the acceptance is made using the same method as the offer, legal acceptance is immediate.
    • If the method is different, the acceptance must be recieved by offerer to be legal

V. Termination of An Offer

  1. Revocation– take it back before it’s excepted
  2. Rejection– offer is not accepted
  3. Counteroffer– modification of original offer, original offer is terminated
  4. Expiration of Time– when a time limit is established, the offer is terminated after that
  5. Death or Insanity– if you pass away (offerer or offeree) before the offer is accepted, unless it was already agreed to, there is a binding agreement
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