Essentials Of Business Law

Chapter 6
Introduction To Contracts
McGraw-Hill/Irwin Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Contract
Legally enforceable agreement
Between two or more parties
Agree to perform, or to avoid performing
certain legal acts
Contains six elements
Only legal obligations, not social or moral
obligations, are enforceable
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Purposes Of A Contract
Sale of merchandise or services
Employment
Transfer of ownership of land or personal
property
May be extended or otherwise revised
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Elements Of An
Enforceable Contract
1. Offer and acceptance
Offer
Proposal made by offeror to offeree
Indicates willingness to enter contract
Acceptance
Indication by offeree to agree to be bound by the
terms of the offer
2. Mutual agreement
Clear understanding of agreement
Meeting of the minds
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Elements Of An
Enforceable Contract
3. Consideration
Exchange of promises
Each party gives up something of value
4. Competent parties
Capacity to understand
Legal age
Normal mentality
Not impaired by injury, mental disease,
drugs, or alcohol
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Elements Of An
Enforceable Contract
5. Legality of purpose
Purpose of contract must be legal
6. Proper form
Must be in writing when:
Over $500
Longer than one year

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Types Of Contracts
Oral contract
Created from the conversation of the parties
Not in writing
Not signed by parties
Example: discussion of the terms of a purchase with a
salesperson
Written contract
Written in a permanent form
Can be handwritten, typed, or printed
Reduces the risk of possible disagreements later
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Types Of Contracts
Express contract
Explicitly states the agreement of the parties
Can be oral or written
Implied contract
Terms of the agreement are implied from:
Conduct of the parties
Customs of the trade
Conditions or circumstances
Neither oral nor written
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Types Of Contracts
Formal contract
Written contract with a seal
Simple contract
Informal contract without a seal
Can be written, oral, or implied
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Types Of Contracts
Entire contract
Contains two or more parts
Each part is dependant on the other
Goods must be offered in a single delivery, after
which payment can be demanded
Divisible contract
Contains two or more parts
Each part is independent of the others
Goods can be delivered in lots, payment can be
demanded for each lot

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Status Of Contracts
Executory contract
A future act or obligation remains to be
performed
Completely executory if no part of the contract
has been performed
Partly executory if some provision have been
performed
Executed contract
Terms of agreement have been fully
performed
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Enforceability Of Contracts
Valid contract
Legally enforceable
Contains six essential elements
Offer and acceptance
Mutual agreement
Consideration
Competent parties
Legality of purpose
Proper form

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Enforceability Of Contracts
Void contract
Lacks one or more essential elements
Voidable contract
May be rejected by one of the parties for a
legal reason
Example: agreement with a minor
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