Chapter 4 Notes: What is a contract?

4.1 Agreements and Contracts

A contract is any agreement enforceable by law.

A contract requires six elements:
Offer
Acceptance
Capacity
Consideration
Legality
Genuine agreement

An offer is a proposal to do something or pay an amount to another party.
Acceptance is when a party agrees to an offer made by another party.
Capacity is the legal ability to enter into a contract.
Consideration is something of value offered or exchanged.
Legality means that a contract may not involve breaking the law.
Genuine agreement means that a legal offer is met with a legal acceptance.

Contracts can be valid, void, voidable, or unenforceable.
A contract is valid if it is legally good.
A contract is void if it lacks one or more of the elements of a contract.
A contract is voidable if either party can cancel the contract for a legal reason.
A contract is unenforceable if it will not hold up in court.

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

Contracts may be unilateral or bilateral.
A bilateral contract is when both parties promise to do something.
A unilateral contract is when one party promises to do something only if the other party does something.

4.2 How a contract Begins

To be valid, an offer must be:
Made seriously
Definite and certain
Communicated to the offeree

An offer must be made with serious intent to enter into a legal obligation.
Offering to sell your car to someone for $5.00 as a joke is not a legally binding offer.
An offer must be definite and certain.
An offer to buy a friend’s iPod for a reasonable amount at some time in the future does not constitute a valid offer.
An offer must be communicated to the offeree, the person the offer is made to.
This can be done in person, or by phone, letter, e-mail, text message, or any other means of communication.

Acceptance of an offer by an offeree has two basic requirements:
It must be unconditional
It must be communicated to the offeror

To be unconditional, an acceptance must follow the mirror image rule, which means it must match the terms of the offer.
Like an offer, an acceptance must be communicated to the offeror.

At the time the acceptance takes place, the contract comes into existence.

An offer can be terminated, rather than accepted, in five ways:
Revocation
Counteroffer
Death or insanity
Rejection
Expiration of time

Revocation is when the offeror takes back the offer.
Rejection is when the offeree refuses the offer.
A counteroffer is when the offeree changes the terms of the offer.
The offer is terminated and the offeror can accept or reject the counteroffer.
If the offeror sets a time limit on an offer, such as one week, it must be accepted by then or the offer is terminated.
An offer is also terminated if the offeror dies or becomes insane.