Chapter 6 - Formation of Contracts.docx

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

Chapter 6Formation of Contracts Contracta voluntary exchange of promises creating obligations that if defaulted on can be enforced and remedied by the courtspeople are creating and defining their own rules and obligationsfreedom of contractpeople can enter into almost any contractual agreement as long as the contract meets the common law requirements Elements of a Contract 1 Consensusparties must have reached mutual agreement to commit themselves to a certain transaction assumed to have negotiated the agreement from equal bargaining positions 2 Considerationmust be commitment by each party to do something or abstain from doing something its the price each is willing to pay to participate in the contract 3 Capacityparties must be legallycapable of understanding and entering into agreement limitations placed on infants insaneintoxicated persons aliens native people corporations 4 Legalitythe object and consideration involved must be legal and not against public policy 5 Intentionboth parties must be serious when making the agreement and must intend that legally enforceable obligations will result from it Important Terms and Definitions Formal contractone that is sealed by the party to be bound Simple contracts parol contractsmay be verbal or written but are not under seal Express contractparties have expressly stated their agreement either verbally or in writing Implied contractinferred from the conduct of the parties when people deposit coins into vending machine it can be inferred that they intend to create contractual relationship thus implied contract is in force Valid contractone thats legally binding on both parties Void contractdoes not qualify as a legally binding contract because an essential element is missing Voidable contractis valid but one party has the option to end the contractDistinction If original contract is void goods must be returned to seller If contract is voidable the outsider has acquired good title to goods and can keep them
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