Chapter 6 - Business Law 2275

8 Pages

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

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Chapter 6Formation of ContractsThe Contractual RelationshipAlong with torts the second area of private law affecting businesspeople and by far the most important is the law of contractsFive essential elements are necessary for valid contractsDefinition of ContractContracta voluntary exchange of promises creating obligations that if defaulted on can be enforced and remedied by the courtsIn contracts people are creating and defining their own rules and obligations whereas in torts for instance rules and obligations are imposed on themCourts will enforce a valid contract after it has been created and what parties agree to in the first place is generally unrestricted this approach is referred to as the freedom of contractPeople can enter into any kind of contractual agreement as long as the contract meets common law requirementsLaw of contracts is primarily found in common law but there are a number of specialized areas in which legislation that modifies restricts or replaces these common law principles has been enacted thereby interfering with the freedom to contract ex sale of goods consumer protection employment partnerships corporations and real propertyCourts may become involved in a small proportion of contractual agreements when an unresolvable dispute arisesElements of a Contract 1 ConsensusParties to contract must have reached a mutual agreement to commit themselves to a certain transaction usually involves an offer and an acceptance although consensus can be implied 2 ConsiderationMust be a commitment by each party to do something or to abstain from doing something the consideration is the price each party is willing to pay to participate in the contract 3 CapacityParties to a contract must be legally capable of understanding and entering into the agreement Limitations in contracting capacity have been placed on infants insane or intoxicated persons aliensnonCanadian citizens and in some instances native people and corporations 4 LegalityThe object and consideration involved in the agreement must be legal and not against public policy 5 IntentionBoth parties must be serious when making the agreement and both must intend that legally enforceable obligations will result from itGeneral rulean agreement reached verbally between parties is every bit as binding as a written oneLegislation the Statute of Frauds has been passed and requires certain types of agreements to be supported by evidence in writing before they will be enforced in the courtsImportant Terms and DefinitionsFormal and Simple Contracts o Formal contractsealed by the party to be bound traditionally a seal involved making an impressing in sealing wax but a modern seal normally consists of a paper wafer affixed to the document but any mark or impression will do o Simple contractssometimes called parol contracts may be verbal or written but are not under sealExpress and Implied Contracts o Express contractparties have expressly stated their agreement verbally or in writing
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