Business Law Chapter 12: Contract Formation
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Questions and Answers

Which of the following contracts must be in writing to be enforceable? (Select all that apply)

  • Contracts that can be performed in one year
  • Contracts involving interests in land (correct)
  • Oral contracts
  • Contracts that cannot be performed within one year (correct)

    • What must the writing of a land contract include?

    A description of the property with sufficient certainty for identification.

    A contract for the sale of land is enforceable if it is not in writing.

    False

    The one-year rule states that a contract that cannot be performed within one year must be in __________.

    <p>writing</p> Signup and view all the answers

    An oral contract is enforceable even if performance takes longer than one year.

    <p>True</p> Signup and view all the answers

    Match the type of contract with its requirement regarding enforceability:

    <p>Contract involving land = Must be in writing Contract that cannot be performed within one year = Must be in writing Contract that can be performed within one year = Oral contract is enforceable if possible Contract objectively impossible during one-year period = Must be in writing</p> Signup and view all the answers

    What is a promise in contract law?

    <p>A declaration that a person will perform or refrain from performing some present or future act.</p> Signup and view all the answers

    What is the common law's role in contract law?

    <p>It governs all contracts except when modified or replaced by statutory law.</p> Signup and view all the answers

    What is the definition of a contract?

    <p>A promise or a set of promises for which the law provides a remedy for breach or recognizes as a duty.</p> Signup and view all the answers

    What defines a bilateral contract?

    <p>An exchange of promises between the offeror and the offeree.</p> Signup and view all the answers

    What is an express contract?

    <p>A contract where the terms are clearly stated, either orally or in writing.</p> Signup and view all the answers

    Which of the following is not a termination method for an offer?

    <p>Acceptance by the offeree</p> Signup and view all the answers

    What constitutes an implied contract?

    <p>A contract formed by the conduct of the parties rather than written or spoken words.</p> Signup and view all the answers

    What is a counteroffer?

    <p>A rejection of the original offer and the simultaneous making of a new offer.</p> Signup and view all the answers

    An offer can be revoked at any time before it is accepted.

    <p>True</p> Signup and view all the answers

    What is the Mailbox Rule?

    <p>Acceptance is effective when the offeree dispatches it using an authorized means.</p> Signup and view all the answers

    An agreement consists of an __________ and an acceptance.

    <p>offer</p> Signup and view all the answers

    What must be true for acceptance to be unequivocal?

    <p>It cannot change the terms of the original offer.</p> Signup and view all the answers

    What are the elements required for a valid contract?

    <p>All of the above</p> Signup and view all the answers

    Consideration can exist without an exchange of value.

    <p>False</p> Signup and view all the answers

    What is a promise to do something that one has no prior legal duty to do called?

    <p>Legally sufficient value</p> Signup and view all the answers

    An agreement that lacks _____ is not a valid contract.

    <p>consideration</p> Signup and view all the answers

    What is an illusory promise?

    <p>A promise that expresses uncertainty of performance.</p> Signup and view all the answers

    A minor can disaffirm a contract even if they have lied about their age.

    <p>True</p> Signup and view all the answers

    Which of the following is a requirement for contractual capacity?

    <p>All of the above</p> Signup and view all the answers

    Contracts formed for illegal purposes are still enforceable.

    <p>False</p> Signup and view all the answers

    What is the effect of an illegal contract?

    <p>It is void and unenforceable.</p> Signup and view all the answers

    Which statute requires certain types of contracts to be in writing?

    <p>Statute of Frauds</p> Signup and view all the answers

    What must a minor do to disaffirm a contract?

    <p>Express intent not to be bound by the contract.</p> Signup and view all the answers

    Study Notes

    Overview of Contract Law

    • Common law governs contracts unless modified by statutory law.
    • The Uniform Commercial Code (UCC) regulates contracts for the sale and lease of goods.
    • Contract law ensures private agreements are enforceable.

    Definition and Elements of a Contract

    • A contract is a promise or set of promises enforceable by law.
    • Key elements for a valid contract include:
      • Agreement (offer and acceptance)
      • Consideration (bargained-for exchange)
      • Contractual capacity (competency of parties)
      • Legality (lawful purpose)

    Types of Contracts

    • Bilateral Contracts:

      • Formed when the offeree accepts by promising to perform.
      • Both parties exchange promises to act.

    • Unilateral Contracts:

      • Acceptance occurs through the actual performance of an act, not by promise.
      • Example: A reward offered for the return of lost property.

    • Express Contracts:

      • Terms are explicitly stated in oral or written form.

    • Implied Contracts:

      • Formed through conduct indicating agreement, even if not verbally or written.

    • Quasi Contracts:

      • Fictional contracts imposed by courts to prevent unjust enrichment.
      • Exist when one party benefits at the expense of another, even without explicit agreement.

    Performance-Based Contracts

    • Executed Contracts:

      • Fully performed by all parties involved.

    • Executory Contracts:

      • Not fully performed by one or more parties.

    Enforceability of Contracts

    • Valid Contracts:

      • Meet all elements and are enforceable by law.

    • Voidable Contracts:

      • Valid but can be legally voided by one party.

    • Unenforceable Contracts:

      • Valid but cannot be enforced due to specific legal defenses (e.g., statute requirements).

    • Void Contracts:

      • Have no legal effect and cannot be enforced.

    Agreement Component of Contracts

    • An agreement requires a clear offer and acceptance.
    • Mutual assent must be expressed by all parties to form a valid contract.

    The Offer

    • An offer includes:
      • A promise to act or refrain from acting.
      • Serious intent by the offeror, reasonably certain terms, and communication to the offeree.

    Offer Termination

    • A binding contract can only be formed upon acceptance of an offer.

    • Offers can be terminated by:

      • Revocation by the offeror.
      • Rejection or counteroffer by the offeree.

    • Revocation is effective only upon the offeree’s actual receipt of the withdrawal.

    Examples and Applicability

    • Implied contracts occur when services are provided with the expectation of payment, and the recipient fails to reject them.
    • Unilateral contracts are exemplified by specific rewards, contingent solely upon the completion of the act specified in the offer.

    This summary highlights the critical components of contract formation as outlined in the text, with a focus on definitions, types, elements, and enforceability.### Revocation of Offers

    • Traditional view allows revocation of an offer until full performance by the offeree.
    • Modern view prohibits revocation once performance has been substantially undertaken.
    • Revocation can occur through express repudiation or actions inconsistent with the offer.

    Rejection of Offers

    • Rejection terminates the offer; no contract is formed.
    • Any attempts at subsequent acceptance are treated as a new offer from the original offeree.
    • Rejection is effective only upon actual receipt by the offeror.

    Counteroffer

    • A counteroffer serves as a rejection of the original offer while presenting a new offer.
    • Acceptance at common law requires mirroring the original offer precisely.
    • Any changes in an offer's terms terminate the initial offer and create a counteroffer.

    Termination by Operation of Law

    • Offers may terminate due to:
      • Lapse of Time: Automatically terminates after a specified period or after a reasonable time if no deadline is set.
      • Destruction of Subject Matter: If the subject matter is destroyed before acceptance, the offer is canceled without notice.
      • Death or Incompetence: The death or incompetence of either party cancels the offer unless it’s irrevocable.

    Acceptance

    • Acceptance indicates assent to the offer's terms and must be communicated to the offeror.
    • It must be unequivocal without changes or additional conditions; otherwise, it is a counteroffer.
    • Silence or inaction generally does not constitute acceptance.

    Communication of Acceptance

    • In unilateral contracts, acceptance is effective through substantial performance; notification isn’t needed.
    • In bilateral contracts, communication of acceptance through mutual promises is essential.

    Timeliness of Acceptance

    • Acceptance must occur before the offer is terminated, either through terms or operation of law.
    • Generally takes effect when the offeree sends it using an authorized method.
    • Mailbox Rule: Acceptance via mail is effective upon dispatch, not receipt, unless using instantaneous communication methods.

    Manner of Acceptance

    • An offer may specify the manner of acceptance; failure to use the authorized means results in no acceptance.
    • If unspecified, acceptance can occur via any reasonable method.
    • Substitute methods may be effective but only upon receipt by the offeror.

    Elements of a Valid Contract

    • Agreement: Involves a clear offer and acceptance.
    • Consideration: Legally sufficient value exchanged as compensation.
    • Contractual Capacity: Parties must be legally competent.
    • Legality: The contract’s purpose must be lawful upon execution.

    Elements of Consideration

    • Generally defined as value given in exchange for a promise or action.
    • Must be legally sufficient and involve a bargained-for exchange.
    • Legal value can involve promises to do something not previously obligated.

    Agreements Lacking Consideration

    • Lack of consideration leads to invalid contracts.
    • Preexisting duty does not constitute consideration if one is already legally bound.
    • Past consideration is unenforceable; agreements must be made for future or present actions.
    • Illusory promises indicate uncertainty and lack actual commitment, hence no consideration exists.### Contractual Capacity
    • Contractual capacity refers to the legal ability of individuals to enter into contracts.
    • Legal protections exist for certain individuals to prevent them from being disadvantaged, such as those deemed mentally incompetent by a court.

    Contractual Capacity: Minors

    • Minors can engage in contracts voidable at their discretion, except those explicitly prohibited by law.
    • Contracts can be disaffirmed, meaning the minor can choose not to be bound by the agreement.
    • Disaffirmance requires expressing intent to void the contract and must encompass the entire contract, not just parts.
    • Only minors have the right to disaffirm contracts; adults remain bound unless released by the minor's actions.
    • A minor can disaffirm any contract during their minority or within a reasonable period after reaching adulthood.
    • Minors can disaffirm contracts even when they misrepresent their age.
    • Upon disaffirmance, minors usually must return any goods received, as long as they are in their possession.

    Contractual Capacity: Intoxication

    • Intoxication inhibits a person's capacity to enter into valid contracts, dependent on the level of intoxication at the time of contracting.
    • A contract may be voidable if the intoxicated individual lacked mental capacity; otherwise, it may be enforceable if they understood the agreement's terms.
    • Objective indicators of a person's condition are evaluated to determine capacity, including the quantity of alcohol consumed and fairness of the contract.
    • The presumption is that intoxicated contracts are valid, placing the burden on the intoxicated party to prove incapacity.
    • If successful, the intoxicated party can disaffirm the contract while still intoxicated or within a reasonable time post-intoxication.
    • The party claiming intoxication must be able to return any consideration received.

    Contractual Capacity: Mental Incompetence

    • Contracts involving mentally incompetent persons can be classified as void, voidable, or valid.
    • Previous court determinations of incompetence render contracts void; only a court-appointed guardian can contract on behalf of the individual.
    • A person deemed mentally competent can disaffirm a contract if they were unaware they were entering a contract or lacked understanding of its implications.

    Elements of a Contract

    • A valid contract comprises an agreement (consisting of an offer and acceptance), consideration (that is legally sufficient), and contractual capacity (where all parties must be competent).
    • Contracts must have a legal purpose at the time of execution.

    Legality

    • A contract is valid only if it is formed for a legal purpose; illegal contracts are void and unenforceable.
    • Contracts to perform illegal acts or commit torts violate public policy and are therefore unenforceable.

    Legality: Contrary to Statute

    • Statutes can dictate what may be included in contracts; agreements to commit crimes are unenforceable.
    • Usury occurs when loans are offered at interest rates exceeding legal limits, rendering such contracts illegal and potentially void.
    • Many gambling contracts are considered illegal and aren't enforceable, despite some regulated forms being allowed in various states.

    Legality: Contrary to Public Policy

    • Some contracts may not be enforced due to their negative societal impact, such as agreements restricting competition or trade.

    Effect of Illegality

    • Illegal contracts are void, and parties are typically in pari delicto (equally at fault).
    • Executory contracts cannot be enforced, and no damages can be recovered from executed illegal contracts, regardless of the circumstances.

    The Statute of Frauds

    • Different states have their own Statute of Frauds, mandating that specific contracts be in writing and signed to be enforceable.
    • The statute aims to protect parties from harm by ensuring written evidence of significant transactions is available.

    Contracts That Require a Writing

    • Certain contracts necessitate written evidence to be enforceable, including those involving interests in land and contracts that cannot be performed within one year from formation.

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    Related Documents

    1 MGMT 311 Chapter 12 Contract Formation PowerPoint (Student Copy).pptx

    Description

    Test your knowledge on the key concepts of contract formation as outlined in Chapter 12 of Business Law. Explore the sources of contract law and understand how common law influences contracts. This quiz will help reinforce your understanding of essential legal principles.

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