Section 5.1

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ContractsContractsSection 5.1Section 5.1

Understanding Business and Personal Law


How Contracts Arise

Section 5.1Section 5.1ContractsContracts

Section 5.2Section 5.2Offer and AcceptanceOffer and Acceptance

55ChapterChapter How Contracts AriseHow Contracts Arise



How Contracts Arise

What You’ll Learn

How to identify a contract’s elements How to identify a contract’s elements (p. 108)(p. 108)

How to identify valid, void, voidable, How to identify valid, void, voidable, and unenforceable contracts (p. 110) and unenforceable contracts (p. 110)



How Contracts Arise

What You’ll Learn

How to distinguish between express and How to distinguish between express and implied contracts (p. 111)implied contracts (p. 111)

How to identify unilateral and bilateral How to identify unilateral and bilateral contracts (p. 111)contracts (p. 111)



How Contracts Arise

What You’ll Learn

How to distinguish between oral and How to distinguish between oral and written contracts (p. 112)written contracts (p. 112)



How Contracts Arise

Why It’s Important

Identifying a contract’s elements will help Identifying a contract’s elements will help you manage your affairs in an intelligent you manage your affairs in an intelligent and effective manner.and effective manner.



How Contracts Arise

Legal Terms

contract (p. 106)contract (p. 106)offer/acceptance (p. 109)offer/acceptance (p. 109)genuine agreement (p. 109)genuine agreement (p. 109)capacity (p. 109)capacity (p. 109)consideration (p. 109)consideration (p. 109)legality (p. 109)legality (p. 109)



How Contracts Arise

Legal Terms

void/voidable contract (p. 110)void/voidable contract (p. 110)unenforceable contract (p. 111)unenforceable contract (p. 111)express/implied contract (p. 111)express/implied contract (p. 111)bilateral/unilateral contract (pp. 111, 112)bilateral/unilateral contract (pp. 111, 112)



How Contracts Arise

The Nature of a ContractThe Three Theories of Contract LawThe Elements of a Contract

Section OutlineSection Outline

Understanding Contract Law



How Contracts Arise

Characteristics of a Contract Valid, Void, Voidable, or UnenforceableExpress or ImpliedBilateral or UnilateralOral or Written

Section OutlineSection Outline



How Contracts Arise

Pre-Learning Question Pre-Learning Question

How would you define contract?



How Contracts Arise

A A contractcontract is any agreement is any agreement enforceable by law.enforceable by law.Not all agreements are contracts, Not all agreements are contracts, however.however.Whether or not it’s a contract, Whether or not it’s a contract, depends on the circumstances of depends on the circumstances of the agreement.the agreement.

The Nature of a Contract The Nature of a Contract



How Contracts Arise

The evolution of contract law shows The evolution of contract law shows how its focus has changed.how its focus has changed.

The Three Theories of The Three Theories of Contract Law Contract Law



How Contracts Arise

In the past, courts asked whether the In the past, courts asked whether the parties to a contract exchanged things parties to a contract exchanged things of equal value. This approach was of equal value. This approach was called the equity theory of contract called the equity theory of contract law.law.

The Equity Theory The Equity Theory



How Contracts Arise

The advent of industrial capitalism The advent of industrial capitalism forced the courts to shift their forced the courts to shift their focus.They began to ask if the parties focus.They began to ask if the parties had agreed to the terms in the had agreed to the terms in the agreement of their own free will.agreement of their own free will.

The Will Theory The Will Theory



How Contracts Arise

Then the courts began to study the Then the courts began to study the parties’ actions and words to parties’ actions and words to determine if there was a “meeting of determine if there was a “meeting of the minds.”the minds.”

The Formalist Theory The Formalist Theory



How Contracts Arise

This led to certain fixed elements in a This led to certain fixed elements in a contract. It is called the formalist contract. It is called the formalist theory because it relies on the form of theory because it relies on the form of the agreement.the agreement.

The Formalist Theory The Formalist Theory



How Contracts Arise

There are six elements of a contract.There are six elements of a contract.

Elements of a Contract Elements of a Contract

1.1. OfferOffer2.2. AcceptanceAcceptance3.3. Genuine agreementGenuine agreement4.4. ConsiderationConsideration5.5. CapacityCapacity6.6. LegalityLegality



How Contracts Arise

An An offeroffer is a proposal by one party is a proposal by one party to another intended to create a to another intended to create a legally binding agreement.legally binding agreement.An An acceptanceacceptance is the second is the second party’s unqualified willingness to go party’s unqualified willingness to go along with the first party’s proposal.along with the first party’s proposal.




How Contracts Arise

If a valid offer is met by a valid If a valid offer is met by a valid acceptance, a acceptance, a genuine agreementgenuine agreement exists.exists.CapacityCapacity is the legal ability to enter is the legal ability to enter a contract.a contract.




How Contracts Arise

ConsiderationConsideration is the exchange of is the exchange of things of value.things of value.LegalityLegality means that people can means that people can only enter into contracts for legal only enter into contracts for legal purposes. People cannot enter into purposes. People cannot enter into contracts to commit illegal acts.contracts to commit illegal acts.




How Contracts Arise

Pre-Learning Question Pre-Learning Question

What is one characteristic that you think a contract must have?



How Contracts Arise

Contracts can have any of the Contracts can have any of the following characteristics:following characteristics:

Characteristics of a Contract Characteristics of a Contract

Valid, void, voidable, or Valid, void, voidable, or unenforceableunenforceableExpress or implied Express or implied Bilateral or unilateralBilateral or unilateralOral or writtenOral or written



How Contracts Arise

Valid, Void, Voidable, Valid, Void, Voidable, or Unenforceable or Unenforceable

A valid contract is legally binding.A valid contract is legally binding.A contract that is A contract that is void void has no legal has no legal effect.effect.



How Contracts Arise

Valid, Void, Voidable, Valid, Void, Voidable, or Unenforceable or Unenforceable

When a party to a contract is able to When a party to a contract is able to void or cancel the contract for some void or cancel the contract for some legal reason, it is a legal reason, it is a voidable voidable contract.contract.An An unenforceable unenforceable contract is one contract is one the court will not upholdthe court will not uphold. .



How Contracts Arise

An An express contractexpress contract is stated in is stated in words and may be either oral or words and may be either oral or written.written.An An implied contractimplied contract comes about comes about from the actions of the parties.from the actions of the parties.

Express or Implied Express or Implied



How Contracts Arise

Sarah paid Isabel $50 to hack into Mrs. Wojcik’s computer files for a copy of the upcoming final exam, but Isabel gave Sarah the pre-test instead. Is this contract valid, void, voidable, or unenforceable?



How Contracts Arise

ANSWERANSWER

Void. It has no legal affect.



How Contracts Arise

A A bilateral contractbilateral contract contains two contains two promises.promises.A A unilateral contractunilateral contract contains a contains a promise by only one person to do promise by only one person to do something, if and when the other something, if and when the other party performs some act.party performs some act.

Bilateral or Unilateral Bilateral or Unilateral



How Contracts Arise

5.15.1

How Parties Reach Agreement How Parties Reach Agreement



How Contracts Arise

5.15.1

How Parties Reach Agreement How Parties Reach Agreement



How Contracts Arise

An oral contract is created by word An oral contract is created by word of mouth and comes into existence of mouth and comes into existence when two or more people form a when two or more people form a contract by speaking to each other.contract by speaking to each other.Sometimes, however, it is desirable Sometimes, however, it is desirable to put contracts in writing.to put contracts in writing.

Oral or Written Oral or Written



How Contracts Arise

Reviewing What You Learned

1. What are the elements of a contract?

Section 5.1 Assessment



How Contracts Arise


Offer, acceptance, genuine agreement, capacity, consideration, and legality.


Answer



How Contracts Arise


2. What are the differences among valid, void, voidable, and unenforceable contracts?




How Contracts Arise


A valid contract is legally binding.An unenforceable contract will not be upheld generally by the court because of some rule of law.


Answer



How Contracts Arise


A contract that is void has no legal effect and a voidable contract is not void in itself, but may be voided by one or more of the parties if the party so chooses.


Answer



How Contracts Arise


3. What are the differences between express and implied contracts?




How Contracts Arise


An express contract involves words, while an implied contract does not.


Answer



How Contracts Arise


4. What are the differences between unilateral and bilateral contracts?




How Contracts Arise


A unilateral is a one-sided contract, in which one party makes a promise in exchange for an act. In a bilateral contract, a contract legally comes into existence when promises are exchanged.


Answer



How Contracts Arise


5. What are the differences between oral and written contracts?




How Contracts Arise


Oral contracts are spoken. Written contracts are in writing.


Answer



How Contracts Arise


Critical Thinking ActivityHistoryHow did the Industrial Revolution change the court’s attitude toward interpreting contract law?



How Contracts Arise


The industrial revolution and the need to support a profit-making system required that the courts shift their focus from contract fairness to whether the parties had actually agreed to the terms set forth in the agreement and whether they had reached a “meeting of the minds.”

Critical Thinking Activity AnswerHistory



How Contracts Arise


Legal Skills in ActionElements of a Contract Your friend, Arkadi, has begun teaching contract law classes at a local senior citizens center.



How Contracts Arise


Legal Skills in ActionElements of a Contract Write a paragraph in which you explain the six elements of a contract in such a way that will help Arkadi create his course outline.



How Contracts Arise


Legal Skills in ActionElements of a Contract Remember to include information on the historical development of the will theory, which led to the need to develop the six elements included within the formalist theory of contract law.



How Contracts Arise


Paragraphs will vary, but should include discussion of the six elements that make up a contract.

Critical Thinking Activity AnswerElements of a Contract

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