Class Rreflection 2

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ACC 150
THE LEGAL ENVIRONMENT OF BUSINESS

With Doreen Smith, Esquire

Chapter 11

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DEFINITION OF CONTRACT

  • A Contract is a legally binding agreement between two or more parties.
  • Elements (all elements are necessary to make a binding contract)
  • An agreement (offer and acceptance)
  • Between competent parties
  • Based on genuine assent of the parties
  • Supported by consideration
  • Made for a lawful objective and
  • In the form required by law

AGREEMENT
(OFFER AND ACCEPTANCE)

  • Offer
  • The expression of a party’s willingness to enter into a contractual agreement
  • Acceptance
  • Unqualified assent to an offer to make a contract.
  • Importance
  • “Offer” and “acceptance” are 2 of the 6 elements of a contract. If either the “offer” or “acceptance” are not present, a binding contract cannot be formed.
  • Intent --parties must intend to form a contract
  • Counteroffer
  • When an offer is made and the offeree (person to whom an offer is made) changes the terms of the offer (basically rejecting the original offer)

COMPETENT PARTIES

  • An agreement that otherwise appears to be a contract may not be binding because one of the parties lacks contractual capacity.
  • In such a case, the contract is ordinarily voidable at the election of that party who lacks contractual capacity.

COMPETENT PARTIES

  • Contractual incapacity is the inability, for mental or physical reasons, to understand that a contract is being made and to understand its general terms and nature.
  • Incapacity may be due to:
  • Being a minor.
  • Insanity.
  • Intoxication.

GENUINE ASSENT OF THE PARTIES

  • Sometimes an agreement may not be voluntary because one of the parties was under undue influence or duress.
  • Undue Influence
  • When one party dominates another person in a contractual situation.
  • Duress
  • A person may be under physical or economic duress and forced into a contract.

CONSIDERATION

  • Consideration
  • It is the bargained-for exchange between the parties to a contract.
  • Without consideration, there is no contract.
  • Example:
  • Susan offers John $100.00 for his Ipod. John accepts. So, Susan gives up $100.00 and John gives up his Ipod. Another way of looking at is, Susan gains an Ipod and John gains $100.00.

LAWFUL OBJECTIVE

  • If a contract is Illegal, the contract is void.
  • A void contract cannot be enforced by either party. The parties are not entitled to the aid of the courts.
  • This is different than a voidable contract where one of the parties can at their option disaffirm (avoid the contract).

FORM REQUIRED BY LAW

  • Statute is a law created by the legislature.
  • Statute of frauds states that to prevent fraud, certain kinds of transactions must be evidenced in writing in order to be binding or enforceable.
  • The statute of fraud is governed by state law.
  • Verbal and implied contracts are still enforceable as long as the subject matter of the contract is not covered by the statute of frauds

CONTRACTS THAT MUST BE IN WRITING

  • Agreements which cannot be performed within one year

  • Agreement to sell land (real estate)

  • Promise to pay the debt of another.

  • Promise by an executor/administrator to pay a claim against the Estate from personal funds

  • Promises made in consideration of marriage

  • The sale of goods priced at $500.00 or more.

BILATERAL VS. UNILATERAL CONTRACT

  • Bilateral contract
  • Agreement where one promise is given in exchange for another.
  • Most contracts are bilateral
  • Unilateral contract
  • Contract in which one person makes a promise in exchange for an act. That is, the only way to accept a unilateral contract is with action.
  • Example
  • Jim lost his dog. Jim posts announces to the community that if anyone finds and returns his dog he will pay that person $100.00. The only way to accept Jim’s promise is to find his dog and return it.

CLASSES OF CONTRACTS

OR

OR

binding and effective

VALID

VOID

without legal

effect (unlawful contracts)

VOIDABLE

allows cancellation at option of one party (such as those without capacity)

CLASSES OF CONTRACTS

OR

OR

EXECUTED

completely performed

BILATERAL

one promise

given in exchange

for another

OPTION CONTRACTS

  • Option Contract
  • This is a contract that gives one party the right to enter into a second contract at a later time.
  • Example:
  • Jim wants to purchase Microsoft stock owned by Bud at $30.00 a share. So, Bud agrees to give Jim the option to purchase 100 shares of stock at that price any time prior to October 31st in exchange for a payment of $50.00. If Microsoft stock goes up over $30.00 a share, then Jim will exercise this option; if not, he will not exercise this option.

RIGHT OF FIRST REFUSAL

  • This is a contract in which one party has a right to meet the terms of a proposed contact before it is executed.
  • Example:
  • Sally wants to buy the home next door to her house (owned by Bob), but Bob doesn’t want to sell. Sally and Bob enter into an agreement. Sally pays Bob $1,000 in exchange for Bob’s promise that if Bob ever puts his house up for sale, Sally would have the right to purchase the home for the same terms and conditions that Bob is offered by a willing buyer.

QUASI CONTRACTS

  • In certain situations, the law regards it as unjust for a person to receive a benefit and not pay for it.
  • In such a case, the law of quasi contracts allows the performing person to recover the reasonable value of the benefit conferred on the benefited person even though no contract between them requires any payment.

ELEMENTS OF A QUASI CONTRACT

A benefit is conferred on the defendant

The defendant’s knowledge of the benefit

A finding that it would be unjust for the defendant to retain the benefit without payment