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BUS 393 (52)
Chapter 6

Chapter 6 – Formation of Contracts

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Business Administration
BUS 393
Richard Yates

Chapter 6Formation of ContractsThe Contractual RelationshipContractvoluntary exchange of promises creating obligations that if defaulted on can be enforced and remedied by the courtsAllows people to create and define their own rulesregulations restricted by common law and legislationElements of a Contract1Consensusmutual agreement involving an offer and acceptance2Considerationcommitment to do something the price each is willing to pay3Capacitybe legally capable of understandingentering the agreement4Legalityagreement must be legal5Intentionparties must be serious when making the agreementImportant Terms and DefinitionsFormal and Simple Contracts Formal contractsealed by the party to be boundSimple parol contractmay be verbal or written not under sealExpress and Implied ContractsExpress Contractparties expressly state their agreementImplicit Contractcontract inferred from the conduct of the partiesValid Void and Voidable ContractsValid contractlegally binding on both partiesVoid contractdoes not qualify as a binding contract because an essential element is missingVoidable contractvalid but one party has the right to escapeUnenforceable and Illegal ContractsUnenforceable contracteg required to be in writing and is notIllegal contractinvolves the performance of an unlawful act void courts will not return parties to original positions unless one party is innocentBilateral and Unilateral ContractsBilateralcontract in which both parties make commitments and assume obligationsUnilateral contractno exchange of promises one party performs what has been requested by the otherConsensusThe meeting of the minds of contracting partiesNot necessary for both parties to have read the contract or understood it completely but both parties must have had the opportunity to do so and terms must be unambiguousCase an agreement to continue negotiations is not a contractOfferOffercontains all significant terms of the contract a tentative promise contingent upon acceptance of the offeree terms must be clear and terms may be impliedMust explicitly state the property parties and prices
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