Business Law Chapter 6.docx

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Management and Organizational Studies
Management and Organizational Studies 2275A/B
Cristin Keller

Business Law Chapter 6: Formation of Contracts Contract law is just another area of law with its own set of legal principles Is there a contract? If there is a contract, who are the parties of the contracts? What happened with these contracts and what are you going to do about it. This is a civil case. There’s going to be a plaintiff – balance of probability. Definition of Contract -A contract is a voluntary exchange of promises, creating obligations which, if defaulted on, can be enforced and remedied by the courts -primary concern of the courts is to enforce the reasonable expectations of the parties -A one sided promise is a gift -You can’t legally enforce a one sided promise (gift) if there is not a promise in return (both people have to get something) Elements of a Contract 1. Consensus a. A meeting of the minds of contracting parties b. Share and understanding of the bargain struck c. Be willing to commit themselves to terms d. Terms must be unambiguous e. Failure to read a contract is no excuse f. Comprised of Offer and Acceptance – the minute you accept an offer, there is a legal binding of contract 2. Consideration a. Bargaining- trading promises for promises b. Consideration: the price one is willing to pay for a promise c. All parties must derive some benefit from the deal d. “In consideration for title to your widget, I will pay you a ducet” e. Consideration must be specific – not necessarily money f. Has to be legal g. In the present – past consideration is no consideration (if two people agree – one person agrees to build a shed for $100 and the other agrees to pay $100, a contract is made. If the person building it goes to the other person and says the price of lumber has gone up and asks for $20. If the person agrees, it is a gift, not a consideration. A contract has been made in the past; the person receiving the shed is not getting anything extra. If the person building agrees to paint the shed also for $20 and because of increased price of lumber and the person accepts, it is a contract because the person accepting it is getting something new -new consideration.) If the person doesn’t build the shed by a specific date (if stated in the terms) or does not do it for $100 bucks, you can sue that person. h. One-sided promises are not enforceable – no consideration has been made. Even if a written document is signed on an agreement that I will pay an additional 20 bucks and I don’t end up paying, the guy receiving the gift has no legal right to sue, because it is a gift. However if you made a promise and you’ve done it (give $20 bucks), and you change your mind and want to get it back, you can’t sue the person to get it back. i. Adequacy of Consideration i. Need not be fair but unfair consideration may indicate insanity or fraud ii. Must be specific- the price for the product or service must be stated or in some limited situations a reasonable price will be implied iii. Existing duty - a change in the contract requires new consideration j. Exceptions i. Paying less to satisfy a debt – settlement out of court 1. Settle for less out of court - accept $90 instead of $100 to save hassle of going into court or other things ii. Request for services 1. Quantum meruit (quasi-contract) – pay a reasonable price for the service iii. Promissory estoppels 1. Rely on gratuitous promise 2. Ca
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