FINAL EXAM STUDY GUIDE CHAPTER 9 CONTRACTS A Contract is a Promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty Difference between express and implied contracts An express contract directly states its terms An implied contract consists of those things that can reasonably be inferred from an express contract Express contracts are formed by words while implied contracts are formed by the conduct of the parties Difference between void and voidable contracts A voidable contract is a valid contract but one that can be avoided at the option of one or both of the parties The party having the option can elect either to avoid any duty to perform or to ratify make valid the contract If the contract is avoided both parties are released from it These contracts include contracts made by minors mentally incompetent persons and intoxicated persons may be voidable A void contract is no contract at all The terms void and contract are contradictory A void contract produces no legal obligations on any of the parties Difference between bilateral and unilateral contracts A bilateral contract is a promise for a promise No performance such as payment of funds or delivery of goods need take place for a bilateral contract to be formed The contract comes into existence at the moment the promises are exchanged A unilateral contract is a promise for an act The time of contract formation in a unilateral contract is not the moment when promises are exchanged but the moment when the contract is performed Difference between a contract and a promise A promise ripens into an agreement only after an offer is accepted but every promise is not necessarily an agreement There is difference between the contract and a promise as a valid contract creates obligation and is capable of enforcement in law whereas a mere promise to render service or to hand over certain property moveable or immoveable to a person without any consideration may not create a contractual obligation to be enforced in law How to timely accept an offer best practices Acceptance is a voluntary act by the offeree that shows assent agreement to the terms of an offer The offeree s act may consist of words or conduct The acceptance must be unequivocal and must be communicated to the offeror In bilateral contracts acceptance must be timely Acceptance in a bilateral contract must be timely This generally means the contract is timely if it is made before the offer is terminated Acceptance takes effect at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror This is called the MailBox Rule and is what the majority of courts follow Under this rule if the authorized mode of communication is the mail then an acceptance becomes valid when it is dispatched not when it is received by offeror The mail box rule does not apply to instantaneous forms of communication such as when the parties are dealing face to face by telephone or by fax Common statements in business that are not offers Under common law three elements are necessary for an offer to be effective 1 The offeror must have a serious intention to become bound by the offer 2 The terms of the offer must be reasonably certain or definite so that the parties and the court can ascertain the terms of the contract 3 The offer must by communicated to the offeree An expression of opinion is not an offer It does not indicate an intention to enter into a binding agreement A statement of an intention to do something in the future statement of future intent is not an offer If a business man says I plan to sell my stock in Novation Inc for 150 dollars a share no contract is created A request or invitation to negotiate is not an offer It only expresses a willingness to discuss the possibility of entering into a contract In general advertisements are treated not as offers to contract but as invitations to negotiate Agreements to agree are also not offers Offers counteroffers mirror image rule Offer An offer is a promise or commitment to do or refrain from doing some specified action in the future The parties to a contract are the offeror the one who makes an offer or proposal to another party and the offeree the one to whom the offer or proposal is made Counteroffer A counteroffer is a rejection of the original offer and the simultaneous making of a new offer Mirror Imaging Rule This rule requires the offeree s acceptance to match the offeror s offer exactly the mirror of the offer Any change in or addition to the terms of the original offer automatically terminates the offer and substitutes the counter offer This offer would still need to be accepted but if the original offeror does accept the terms of the counteroffer a valid contract is created Necessary elements of contracts consideration etc Consideration is usually defined as the value such as cash given in return for a promise in a bilateral contract or in return for a performance in a unilateral contract Agreement is also a necessary element Parties agree on the contract In addition to Consideration and agreement for a contract to be deemed valid the parties to the contract must have contractual capacity the legal ability to enter into a contractual relationship Legality is the fourth requirement for a valid contract to exist For a contract to be valid and enforceable it must be formed for a legal purpose A legal contract must also have voluntary consent A lack of voluntary consent can be used as a defense to the contracts enforceability Types of contracts that are void Contracts to commit a crime Usury A lender who makes a loan at an interest rate above the lawful maximum commits usury These contracts are void Contracts in restraint of trade Unconscionable Contracts Deemed unconscionable because they are so unscrupulous or grossly unfair as to be void of conscience Exculpatory Clauses These release a party from liability in the event of monetary or physical injury no matter who is at fault These are often deemed contrary to public policy and are void Mutual vs unilateral mistake A bilateral mutual mistake of fact is a mutual misunderstanding concerning a basic assumption on which the contract was made When both parties are mistaken about the same material fact the contract can be rescinded by either party A unilateral mistake occurs when only one of the contracting parties is mistaken about a material fact
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