GBL 295 Lecture 1: The+Law+of+Contracts+and+Sales+I

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General Business-Business Law
GBL 295

The Law of Contracts and Sales I -A “contract” is a legally enforceable exchange of promises between two or more parties. -There are six essential elements of a contract: 1) Offer 2) Acceptance 3) Consideration 4) Genuine Assent 5) Competent Parties 6) A Legal Object 1) Offer: -The offer must show objective intent to enter into a contract by the offeror -The offer must be definite (must refer to specific terms and subject matter) -The offer must be communicated by the offeror to the offeree Once an offer has been made by the offeror, it will either be accepted or it will terminate. There are five ways that an offer can terminate without being accepted: a) Lapse of time (offeree fails to respond in a reasonable time – if you offer to sell someone your car and they wait 10 years before responding, you are not obligated to sell them your car at that point) b) Death of either party (except for the agent of a corporation) c) Destruction of the subject matter (if you offer to sell someone your car but, before they accept, the car is destroyed, then the offer terminates) d) Rejection by the offeree (fairly self explanatory) e) Revocation buy the offeror (the offer can be revoked prior to acceptance by the offeree) 2) Acceptance: -The offeree who wishes to accept the offer must demonstrate objective intent to do so -This intent must be communicated to the offeree -The intent must satisfy (“mirror”) the offer (in other words, if you offer to sell someone your car for $10,000 and they write you back and say, “I accept the offer. I will purchase your car for $5,000.” that is not a valid acceptance because it does not mirror the offer). 3) Consideration: for a contract to be valid, each side must suffer some “legal detriment.” In other words, each side must give something up in order for a contract to be valid and binding. For example, if you say to your friend, “I will give you a million dollars and you do not have to do anything in return.” then you do not have a binding contract because your friend did not give you any consideration, and you did not receive any consideration in exchange for your promise to give your friend a million dollars. Therefore, if you do not actually give your friend a million dollars and s/he sues you to force you to do so, you would prevail on the grounds that you received no consideration for your offer and, therefore, there was never a binding contract. On the other hand, if you say to your friend, “I will give you a million dollars if you paint my house,” and your friend accepts the offer and paints your house, then you have received consideration (the painting of your house) in exchange for your promise. Painting your house is work performed by your friend, which constitutes a legal detriment to your friend, and constitutes consideration which makes this a valid, binding contract. Therefore, if you did not pay your friend, s/he could sue you and there would be a valid contract. -Adequacy of Consideration: courts generally do not require that consideration be significant. Courts have held that a down payment of $5 to “seal the deal” was sufficient to bind parties to a real estate contract. As long as each party suffers some “legal detriment,” it will usually be adequate consideration. -So what are some situations in which consideration is not adequate, or in which there is no consideration? -The Preexisting Duty Rule: If a party already had an obligation to do something (a “preexisting duty”) then that thing cannot constitute consideration. This is not a legal detriment because the party was already required to do it. -Illusory Promises: a contract in which one party is not actually required to do anything (or if one party’s performance of his/her duty under the contract is optional), then that is an “illusory” promise. It is not a real promise because its fulfilment is optional. Therefore, it does not constitute adequate consideration. -Illegal Consideration: illegal acts cannot constitute valid consideration for a contract. Contracts for the sale of illegal substances or for the performance of illegal acts are invalid, and the consideration is not adequate. 4) Genuine Assent: each party’s assent (agreement) to the contract must be genuine and voluntary. It cannot be given as a result of fraud, duress, undue influence, or mistake. For a contract to be v
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