Chapter 5

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Department
Marketing and Consumer Studies
Course
MCS 3040
Professor
Joseph Radocchia
Semester
Winter

Description
Chapter 5: An Introduction to Contracts Midterm Notes Introduction to Contract Law • Contract: An agreement between two parties that is enforceable in a court of law ◦ Not necessarily in writing, supported by mutual consideration, to do some act voluntarily • An Agreement: Composed of an offer to enter into a contract and an acceptance of that offer ◦ The promises contained in the agreement are known as terms ◦ The informing idea behind a contract is that there has been a “meeting of the minds” - that the parties have agreed on what their essential obligations are to each other • Complete: The agreement must be complete, that is, certain • Deliberate: The agreement must be deliberate, that is, both parties must want to enter into a contractual relationship. This matter – formally known as an intention to create legal relations • Voluntary: The agreement must be freely chosen and not involved coercion or other forms of serious unfairness • Between two or more competent persons: Those who enter into a contract are known as parties to the contract. There must be at least two parties to any contract, who must have legal capacity ◦ Only parties to a contract can sue and be sued on it • Supported by mutual consideration: Acontract involves a bargain or exchange between the parties. This means that each party must give something of value in exchange for receiving something of value from the other party.Acontract must be supported by mutual consideration • Not necessarily in writing: Even oral contracts are enforceable, though it is preferable for negotiators to get the contract in writing. • Once a contract is created, it permits both parties to rely on the terms they have negotiated and plan their business affairs accordingly • If a dispute arises between the two parties, there are various options for dispute resolution • The rules governing contracts are based on common law ◦ Meaning that a judge resolving a contractual conflict is usually relying not on statute law to guiding deliberations, but rather on what other judges have said in past cases (known as precedents) that resemble the current case • Contracts are the legal cornerstone of any commercial operation • Through contract, the business enterprise can sell a product or service, hire employees, rent office space, borrow money, purchase supplies, and enter into any other kinds of binding agreement • Contract law is facilitative: it allows participants to create their own rights and duties within a framework of rules that a judge will later enforce, if called upon to do so • Some contracts are one-shot deals, in that the parties are unlikely to do business with each other again • Other contracts are part of a long-standing and valued commercial relationship • Contract law principles will be applied by a judge to resolve a contractual dispute between parties, whether the parties were aware of those principles or not Review case “Total E-com Home Delivery Inc v. Smith” pg 106 Legal Factors in Their Business Context: Creating the Contractual Communication • contract law concerns itself with what the negotiators say and do, not with what they think or imagine • contract law is governed by the objective standard test • Objective Standard Test: The test based on how a “reasonable person” would view the matter ◦ involves observing the communication that has occurred between the negotiators, would conclude that an offer and acceptance had occurred Bargaining Power • Rarely have equal bargaining power • It is almost invariably the cast that one side will have more experience, knowledge, market leverage, or other advantages • The greater one's bargaining power, of course, the more favorable terms one will be able to secure • The law does not recognize or attach legal significance to this business reality • Contract law is constructed on the basic assumption that those who negotiate and enter into contracts have equal bargaining power • Equal Bargaining Power: The legal assumption that parties to a contract are able to look out for their own interests • Courts are normally not entitled to assess the fairness or reasonableness of the contractual terms of t
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