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24 Cards in this Set
- Front
- Back
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Promise |
A person’s declaration that something will or will not happen in the future.
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Promisor
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The person making the promise.
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Promisee |
The person to whom the promisor made the promise.
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Contract
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A legally enforceable agreement between two or more competent parties, for valuable consideration, to perform or to refrain from performing some act now or in the future.
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Offeror
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The person proposing an agreement.
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Offeree
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The person to whom the offeror proposes the agreement.
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CONTRACT FORMATION ESSENTIALS The following elements must exist for a valid contract. Most of the issues that arise in business (and are questioned on the CPA exam involve one of these elements)
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Agreement, Consideration, Contractual Capacity, Legality, Genuineness of Assent, Objective Theory of Contract, Form
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Agreement
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The offeror must offer to enter into an agreement, and the offeree must accept the terms of the offeror’s offer.
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Consideration
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Something of value given or promised to convince a party to agree to the deal.
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Contractual Capacity
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Both parties must be legally competent to enter into the agreement.
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Legality
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The contract’s purpose must be to accomplish some goal that is legal and not against public policy.
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Genuineness of Assent
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The apparent consent of both parties must be genuine.
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Objective Theory of Contract
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The parties’ assent is judged not by the subjective intent of each party, but by the objective intent that a similarly situated reasonable person would understand the parties to have.
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Form
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The agreement must be in whatever form (e.g., written, under seal) the law requires.
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Bilateral Contract
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A bilateral contract arises when the offeror gives her promise in exchange for the offeree’s return promise (e.g., X promises to deliver a car to Y, and Y promises to pay X an agreed price).
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Unilateral Contract
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A unilateral contract arises when the offeree can only accept the offer by performance (e.g., X offers Y $25 to mow X’s yard). An issue arises when the offeror attempts to revoke the offer. Once the offeree of a unilateral contract begins to perform, the offeror loses the ability to revoke the offer e.g., if X offered Y $25 to mow X’s yard, on Y had substantially begun to perform, X could not revoke her offer to pay Y for mowing her yard.
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Formal Contract
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A contract that requires a special form or method of formation (creation) in order to be enforceable. For example:
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Contract Under Seal
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A formalized writing with a special seal attached.
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Recognizance
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A promise, made in open court, to perform a specific task or pay a specified sum.
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Negotiable Instrument
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A check, note, draft, or certificate of deposit – each of which requires certain formalities.
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Letter of Credit
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An agreement to pay that is contingent upon the receipt of documents (e.g., invoices and bills of lading) evidencing receipt of and title to goods shipped.
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Informal Contract
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A contract that does not require a specified form or method of formation in order to be valid. The vast majority of contracts are informal. That does not mean that they do not have to be in writing. It just means that the contract does not have to follow a specific form to be enforceable.
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Express Contract
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A contract in which the terms of the agreement are explicitly stated orally or in writing. We would prefer that contracts be express. When they are not, lawsuits can arise because each of the parties intended or understood the contract to mean something different.
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Implied-in-Fact Contract
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A contract formed in whole or in part by the conduct (as opposed to the words) of the parties.
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