6 Elements of Legally Enforceable Contracts Law of Contracts 1. Offer and Acceptance 2. Genuine Assent 3. Legal Purpose Business Law Chapters 6-11 4. Consideration (Exchange of value) 5. Capacity to Contract 6. In writing (when required) Offer Determining Contractual Intent Contractual Intent must be present Test of Reasonable Person Not just an invitation to negotiate (i.e. advertisement) Offer must be Communicated to the Offeree Terms must be complete and definite Subject Matter Quantity Price Full terms of payment Date of Delivery and Possession Jests Invitations to Negotiate Statements Made in Anger or Terror Social Agreements
Termination of Offer before Acceptance You Make the Call Revocation by offeror (Must be communicated to offeree) Expiration of a set period or reasonable time Rejection by Offeree Counteroffers Death or Insanity Destruction of Subject Matter Keeping an Offer Open Options Offeree gives offeror something of value to keep offer open Creates a binding contract of its own Firm Offers Merchant offer in writing Good through stated time Not more than 3 months Acceptance Only offeree can accept Must match the offer Must be communicated to offeror
Communication of Acceptance Silence as Acceptance (not legal) Bilateral Acceptance Both sides promise an action Unilateral Acceptance Performance is acceptance Communication may be in any reasonable manner Acceptance is effective when sent, unless specified otherwise. 6 Elements of Legally Enforceable Contracts 1. Offer and Acceptance 2. Genuine Assent 3. Consideration (Exchange of value) 4. Capacity to Contract 5. Legal Purpose 6. In writing (when required) Lack of Genuine Assent Lack of Genuine Assent Illegal Conduct Threats to Report Crimes Threats to Sue Economic Threats Unilateral Mutual (Bilateral) Intentional or Reckless Proof of Injury The Relationship Unfair Persuasion Untrue Statement of Fact Active Concealment Silence Material Fact Reasonable Reliance
Remedies for Voidable Contracts 6 Elements of Legally Enforceable Contracts 1. Offer and Acceptance Cancel contract and get back what you put in 2. Genuine Assent 3. Consideration (Exchange of value) Act toward contract as if you intend to be bound to it If Fraud 4. Capacity to Contract Rescission Damages Punitive Damages Consideration Each party must give value to the other party Each party must trade what they contribute for the other party s consideration Consideration must have legal value 5. Legal Purpose 6. In writing (when required) Examples of Consideration Act Forbearance Promise
Legal Value Is a gift consideration? Read Hot Debate on page 138 Consideration must be a mutual trade. 6 Elements of Legally Enforceable Contracts 1. Offer and Acceptance 2. Genuine Assent 3. Consideration (Exchange of value) 4. Capacity to Contract 5. Legal Purpose 6. In writing (when required) Consideration must have legal value Benefit exchanged for a Benefit Example: I ll pay you $100 to take care of my dog while I m on vacation. Benefit for a Detriment Example: I ll buy you a new car if you don t date until you are 21. Detriment for a Detriment Example: I won t build a fence if you don t buy a dog. Review: 3 Requirements of Consideration Act, forbearance or promise Mutual Trade Legal Value
Adequacy of Consideration Questionable Consideration Illusory Promises Example: I ll paint your house, if I have time. Termination Clauses Illusory: Will buy only Coke, unless we change our mind. Legal: Will buy only Coke, unless given 31 days notice. Output Contract Unimportant if there is genuine assent Unconscionable: grossly unfair or oppressive Nominal Consideration: stated token amount More Questionable Consideration Existing Duty Example: We ll buy all the coal you produce. Requirements Contract Example: We ll provide all the engines you need for production. Read What s Your Verdict? on page 143 False Consideration What s Your Verdict? page 145 Existing public duty Existing private duty Settlement of Liquidated Debt Partial Payment Accord and Satisfaction Release Composition of Creditors Mutual Gifts Past Performance
Exceptions to Consideration Promises to Charitable Organizations What s Your Verdict page 147 Specific Use of gift Acts in Reliance on the pledge Promises Covered by the UCC Firm Offers: signed writing to buy or sell, promises to leave open, bound up to 3 months Modifications: Modification to sale of goods does not need additional consideration More Exceptions to Consideration Promises barred from Collection by Statute Statute of Limitation Most states, 3 years for a lawsuit Debts Discharged in Bankruptcy May promise to repay without additional consideration Promissory Estoppel Prevents gross injustice, when one party has acted in reliance of promise of other party Preventing Legal Difficulties Generally, both parties must give and receive consideration Adequacy of consideration is usually immaterial Accepting money in exchange for giving up a legal right constitutes consideration A pledge to a charitable institution is usually binding without mutual consideration Promises to make gifts are generally not enforceable Courts generally will not rescue you from unfavorable deals voluntarily made. 6 Elements of Legally Enforceable Contracts 1. Offer and Acceptance 2. Genuine Assent 3. Consideration (Exchange of value) 4. Capacity to Contract 5. Legal Purpose 6. In writing (when required)
Contractual Capacity Ability to understand the consequences of a contract, excludes Minor 18 in most states, some states it is 19 or 21 Minority ends the day before your birthday Early Emancipation (states differ) By Court Order Parent and minor agree to end support Minor marries Minor moves out of family home Minor becomes member of armed forces Minor gives birth Minor undertakes full-time employment Mentally Incapacitated Severe mental illness Severe mental retardation Severe senility Insanity could be ruled temporary Intoxication Alcohol or drugs Stricter standards because intoxication is voluntary Person must be so intoxicated that they do not know they are contracting, or Person determined to be in a permanent state of alcoholism
Lack of Contractual Capacity Options Contract considered voidable Disaffirmance Contract is voided Protected party gets back what they put into contract, other party may not get everything back Necessaries, only must pay what is reasonable Ratification Acting toward contract as if you intend to be bound by it, after obtaining contractual capacity Timeline to Disaffirm a Contract Period of Minority Right to disaffirm Age of Majority or Capacity Attained Period of Majority Right to disaffirm lasts for a reasonable length of time after majority is attained. Contract is Ratified Contracts that Cannot be Disaffirmed Effects of Misrepresenting Age All States Court-Approved Contracts Major Commitments Enlistment Educational loans Marriage contracts Most States Banking Contracts Insurance Contracts Work-Related Contracts Some States Sale of Realty Apartment Rental May still disaffirm contracts May be held liable for false representation or fraud Damages may be awarded to other party
Contractual Capacity in Organizations Scope of Authority Employer authorizes employee Titles such as purchasing agent If no scope of authority Contract is voidable Person could be held personally liable