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How is an ownership interest transferred between individuals?
Contracts – Contract law provides rules under which people agree to exchange value. Contracts, express and implied, are the dominant manner by which individuals exchange real and personal property. Contract law is a staple of a developed rule of law system. Enforceable contract rights provide confidence in undertaking economic activity with others. Increased confidence drives economic productivity.
- Note: Visit our chapter on CONTACTS – to learn more about contract law.
Discussion: Do you believe that contract law has an effect on economic activity? Why or why not? If so, what is the effect and why?
Practice Question: Abby and Frank are sitting in the cafeteria eating their lunch. Abby notices that Frank has a delicious chocolate bar. Frank notices that Abby has a bag of his favorite potato chips. Abby agrees to trade her potato chips for Frank’s chocolate bar. Who owned the chocolate bar and potato chips before and after the trade?
- In the practice question, Frank was the original owner of the bar of chocolate while Abby became the owner after the mutual trade. Abby was the original owner of the bag of potato chips then Frank became the owner after they traded. This was a mutual exchange of value constituting a contract.