Business Law

An Introduction to Contracts

What is a contract?
The legal definition of a contract is a
promise (or set of promises) that, when
breached by one party, gives the other
party a legal remedy.

Technical contracts
These contracts have formal
requirements and are often governed
by specific statutes. Examples of these
technical contracts are:
Negotiable instruments
Letters of Credit
Contracts under seal

The Basic Elements of all

Contracts
Mutual Assent: (a valid offer and
acceptance)
Consideration
Legality of subject
Capacity

Mutual Assent
Mutual assent is the final product of a
valid offer and acceptance.
Also often referred to as meeting of the
minds

Offer
An offer is an expression by a party
(usually called the offeror) that he or
she is willing to enter into a bargain

The Power of Acceptance

The power of acceptance refers to the
right of the person receiving the offer to
accept it and create a binding contract.

Offers can be made by words, by

actions, or any combination of both
An offer can be made without any
words at all.

How long is an offer valid?

An offer expires by its own terms, or
after a reasonable period of time.
A reasonable period of time depends
on all of the surrounding circumstances
in a particular case.

Acceptance
A valid offer creates the power of
acceptance in another.

Communicating an acceptance
The person accepting the offer (the
offeree) must communicate this
acceptance to the offeror.

The Mailbox Rule

This rule states that an acceptance is
legally effective when it is deposited in
the U.S. postal system.

Can a person accept by

silence?
Actions alone can indicate acceptance.

Terminating the power of

acceptance
A persons power of acceptance can be
terminated by:

A revocation of the offer by the offeror

A rejection of the offer by the offeree
Lapse of time
Death or subsequent incapacity of either
party
The failure of a required condition

Counteroffers
Counteroffers are new offers, not an
acceptance of the original offer.

Language required to create a

contract
There is no magic formula of words that
must be used in order to create a
contract.

Consideration
The basic reason for a contract; a
person gives up something of value in
exchange for receiving something of
value through the contract.

Capacity
When a person has legal capacity, it
simply means that he or she has the
legal authority to enter into binding,
legal agreements.

Subject of contract
must be legal
A contract that involves illegal activity
will not be enforced through the court
system, for obvious reasons.

Types of Contracts
There are many different types of
contracts.

Classifying a contract by
performance
Contracts can be classified by the
manner in which the parties fulfill it.

Unilateral contracts
Unilateral Contract: A contract in which
one party makes a promise in exchange
for an action by the other party.

Bilateral Contracts
A bilateral contract involves a promise
in exchange for another promise.

Executory and executed

contracts
An executory contract is one that has
not yet been completely performed.
An executed contract is one in which all
required actions have been completed.

Void and voidable contracts

A void contract is a contract that is
invalid.
A void contract cannot be enforced.
A voidable contract is a contract that
could be invalidated, but has not yet
been ruled void.

The Statute of Frauds

The Statute of Frauds is a statute that
requires certain types of contracts to be
reduced to writing before they are
considered legally enforceable.