Chapter 5 Review

1
Chapter 5 Review

• Contracts
• Vocabulary

2
Legal Terms

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

3
Legal Terms

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

4
Legal Terms

• invitations to negotiate (p. 114)
• mirror image rule (p. 117)
• counteroffer (p. 117)
• revocation (p. 120)
• rejection (p. 120)

5
The Nature of a Contract

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

6
Elements of a Contract
There are six elements of a contract.

• offer
• acceptance
• genuine agreement
• consideration
• capacity
• legality

7
Elements of a Contract

• An offer is a proposal by one party to another
  intended to create a legally binding agreement.
• An acceptance is the second partys unqualified
  willingness to go along with the first partys
  proposal.

8
Elements of a Contract

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

9
Elements of a Contract

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

10
Valid, Void, Voidable, or Unenforceable

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

11
Valid, Void, Voidable, or Unenforceable

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

12
Express or Implied

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

13
Bilateral or Unilateral

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

14
Oral or Written

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

15
Requirements of an Offer

• The person who makes an offer is the offeror.
• The person who receives the offer is the offeree.

16
Requirements of an Offer
An offer has three basic requirements. It must be

• made seriously
• definite and certain
• communicated to the offeree

17
Serious Intent

• An offer must be made with the intention of
  entering into a legal obligation.
• An offer made in the heat of anger or as a joke
  would not meet this requirement.

18
Serious Intent
Sometimes an invitation to negotiate can be
confused with an offer.
19
Serious Intent
Advertisements in newspapers, magazines, and
catalogs are examples of invitations to
negotiate, which are invitations to make an offer.
20
Definiteness and Certainty

• An offer must be definite and certain to be
  enforceable.
• Offers that use vague words or terms that cannot
  be quantified lack definiteness and certainty.

21
Communication to the Offeree
Offers may be made by any method that
communicates the offer to the offeree, including

• telephone
• letter
• telegram

• fax machine
• e-mail

22
Requirements of an Acceptance
To be legally binding, the acceptance must meet
certain basic requirements.

• the acceptance must be unconditional
• the acceptance must follow the rules regarding
  the method of acceptance

23
Unconditional Acceptance

• The acceptance must not change the terms of the
  original offer in any way.
• This principle is called the mirror image rule.

24
Unconditional Acceptance

• Any change in the terms of the offer means the
  offeree has not really accepted the offer.
• The offeree has made a counteroffer.

25
Unconditional Acceptance

• If a counteroffer is made, the original offeror
  is not obligated to go along and no contract
  exists.
• The offeror becomes an offeree and may accept or
  reject the counteroffer.

26
Unconditional Acceptance

• Contracts for the sale of goods are exceptions to
  the mirror image rule.
• These exceptions include contracts for personal
  property such as clothing, furniture, food, motor
  vehicles, and appliances.

27
Methods of Acceptance
The time at which an acceptance takes place is
important because that is when the contract comes
into existence.
28
Methods of Acceptance
Special rules govern acceptances that take place
when the parties are separated by a distance and
must be communicated by letters, telegrams, or
fax.
29
Methods of Acceptance
According to common law, an acceptance that must
be sent over long distances is effective when it
is sent.
30
Methods of Acceptance
An acceptance is implied when the offeree accepts
by the same or a faster means than that used by
the offeror.
31
Methods of Acceptance
The authorization of an acceptance can also be
implied by any reasonable means, including

• past practices between the parties
• the usual method in the trade
• customary means in comparable transactions

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