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What is a Contract?

Discover what a contract entails, its crucial components, and the legal implications. From creating valid offers to effective acceptances, ensure compliance with legal requirements for transactions and agreements.

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What is a Contract?

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  1. What is a Contract? • An agreement that courts will enforce • The basis for all economic activity • Legal links between the individuals and companies • Six major requirements to be a transaction

  2. Six Major Requirements • Offer and Acceptance • A serious offer of contract with terms • Genuine Assent • Must not be based on deception or unfair pressure • Legality • Must be legal, no crimes, no torts

  3. Six Major Requirements • Consideration • Both sides received something of legal value • Capacity • Must be able to contract for themselves • Writing • Some, to be fully enforceable in court

  4. Who is involved? • Offeror • Party who offers to form a contract • Offerees • Persons to whom the offer is made

  5. Requirements of an Offer • The Offer • The proposal • Creation of a valid offer • Offeror must intend to create a legal obligation • Terms must be definite and complete • Offer must be communicated to the offeree

  6. Expression of Intent to Create a Legal Obligation • Test of the Reasonable Person • Deals with the ‘appearance’ of the person • Facts and Circumstance • Examine the offeror’s words and conduct

  7. Expression of Intent to Create a Legal Obligation • Preliminary Negotiations • Information is often communicated without indicating intent to contract • Social Agreements • Social arrangements do not create legal obligations

  8. Expression of Intent to Create a Legal Obligation Complete • If missing essential information, it is incomplete and legally ineffective • Essential Terms of Sale of Real Estate • Identity of the specific lot • Price • Full terms for payment • Date for delivery of possession • Date for delivery of deed • Clear • Essential terms must be identified clearly

  9. Expression of Intent to Create a Legal Obligation • Implied Terms • Some terms might be implied by law or common business practice • Advertisements • Only invitations to consumers • Occasionally offers • Numerous people receiving small amounts of product • Asks the offeree to perform a specific act

  10. Offer must be Communicated to the Offeree • Only the intended offeree can accept • Offeree can make a counter offer

  11. How can Offers be Ended? • Revocation of the offer • The right to withdraw an offer before it is accepted • Not effective until communicated to the offeree • Time Stated in the Offer • The offeror may state how and when the offer must be accepted • Reasonable Length of Time • Depends on all the surrounding circumstances

  12. How can offers be Ended? • Rejection by the Offeree • When an offeree clearly rejects the offer, the offer is terminated • Counteroffer • The offeree changes the offeror’s terms in important ways • Death or Insanity • Eliminates control of the parties

  13. How can an Offer be Kept Open? • Options • If the offeree gives the offeror something of value in return for promise to keep the offer open • Firm Offers • An offer by a merchant stating in a signed writing how long it is to stay open

  14. How are Acceptances Created? • Acceptance • When a party to whom an offer has been made agrees to the proposal. • The acceptance must • Be made by the person or persons to whom the offer was made • Match the terms in the offer • Be communicated to the offeror

  15. Who can accept an offer? • The offeree • Exception • When the offer is made to a group of people or to the public • When someone from that groups knows about the offer

  16. Acceptance Must Match the Offer • Mirror Image Rule • The terms must exactly match the offer • Sale of Goods • Terms must still match those in the offer • New or Modified Terms • Consumer • terms considered a proposal • Merchants • if the terms are material • Merchants • if the terms are minor

  17. Acceptance Must be Communicated to the Offeror • Silence as Acceptance • Silence is not considered • Continuing relationships can have silence as an acceptance • Unilateral Acceptance • Offeror promises something in return of the offeree’s performance • Bilateral Acceptance • The offeree accepts by communicating the requested promise to the offeror

  18. When Acceptance is Effective • Contractual communications takes effect when received • Exception: When the acceptance is sent through the mail…then it is effective when sent

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