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Unformatted text preview: C HAPTER 6 F ORMING C ONTRACTUAL R ELATIONSHIPS Objectives After studying this chapter, you should have an understanding of: • how negotiations lead to a contractual relationship • how negotiations can be terminated • what the legal ingredients of a contract are • how contracts can be amended or changed Learning Outcomes • Understand how business negotiations can result in the formation of a contract or terminate without legal consequences (page 112/113) • Understand the essential elements of a contract (page 112/113) • Recognize when contracts can be amended and when they cannot (page 127) Chapter Summary The negotiation of contracts is an essential aspect of every business. It is vital for every business to understand how these negotiations can lead to an enforceable agreement or can end without legal consequences. Problems arise when one party believes that negotiations have terminated without legal commitments while the other party is under the impression that an enforceable contract was made. Negotiations result in a contract when one party makes an offer, or a promise to perform certain acts, and the other party unconditionally accepts all the terms of the offer. Each party must give up something of value in exchange for receiving something of value from the other party. This bargain, or exchange of promises, is consideration, another legal requirement of a contract. Moreover, the parties must have intended to be bound by their promises, meaning that they implicitly recognized that such promises would be enforceable in court. If any one of these four essential elements is missing, the parties have not formed a contract. Negotiations may cease at any stage with the result that a contract will not be made. After an offer has been made, it may come to an end through termination, revocation, rejection, or it may simply lapse. Any purported acceptance that attempts to change any terms of the offer is actually a counteroffer and is equivalent to a rejection. If one party makes a promise that is not supported by consideration, it is nothing more than a gratuitous promise and is not legally binding. Where there is no intention to create legal relations that the court will enforce, a contract is not formed. A contract will only be formed when an offer, acceptance, consideration, and intention are present. At this point, negotiations have resulted in a contract. Study Outline Use this outline to prepare a complete set of notes for this chapter. © 2008 BY N ELSON , A DIVISION OF T HOMSON N ELSON L TD . PART 2: CONTRACTS The Contract – page 112 _______________________________________________________________________ _______________________________________________________________________ Offer ___________________________________________________________ Acceptance ___________________________________________________________ Consideration ___________________________________________________________ Offer – page 113 _______________________________________________________________________...
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- Fall '08
- Business Law, Thomson Nelson, THOMSON NELSON LTD