Law of Contracts
Business Law
Chapters 6 - 11
6 Elements of Legally Enforceable Contracts
1. Offer and Acceptance
2. Genuine Assent
3. Legal Purpose
4. Consideration (Exchange of value)
5. Capacity to Contract
6. In writing (when required)
Offer
Contractual Intent must be presentTest of Reasonable Person
Not just an invitation to negotiate (i.e. advertisement)
Offer must be Communicated to the Offeree
Terms must be complete and definiteSubject Matter
Quantity
Price
Full terms of payment
Date of Delivery and Possession
Determining Contractual Intent
Jests
Invitations to Negotiate
Statements Made in
Anger or Terror
Social
Agreements
You Make the CallYou Make the Call
Termination of Offer before Acceptance
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
OptionsOfferee gives offeror something of value tokeep offer open
Creates a binding contract of its own
Firm OffersMerchant 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 AcceptanceBoth sides promise an action
Unilateral AcceptancePerformance is acceptance
Communication may be in any reasonablemanner
Acceptance is effective when sent, unlessspecified 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
Intentional or Reckl
ess
Proof of Injury
Reaso
nable
Relian
ceMate
rial F
act
Untru
e St
atem
ent
of F
act
Active Concealment
Silence
Unilateral
Mutual (Bilateral)
The Re
latio
nship
Unfair
Persua
sion
Econ
omic T
hrea
ts
Thre
ats to
Sue
Thre
ats to
Rep
ort C
rimes
Illeg
al C
ondu
ct
Remedies for Voidable Contracts
Cancel contract and get back what you put in
Act toward contract as if you intend to be bound to it
If Fraud• Rescission
• Damages
• Punitive Damages
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
Each party must give value to the otherparty
Each party must trade what theycontribute for the other party’sconsideration
Consideration must have legal value
Examples of Consideration
Act Forbearance Promise
Is a gift consideration?
Read “Hot Debate” on page 138
Consideration must be a mutual trade.
Legal ValueConsideration must have “legal value”
Benefit exchanged for a BenefitExample: I’ll pay you $100 to take care
of my dog while I’m on vacation.
Benefit for a DetrimentExample: I’ll buy you a new car if
you don’t date until you are 21.
Detriment for a DetrimentExample: I won’t build a fence if
you don’t buy a dog.
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)
Review:
3 Requirements of Consideration
Act, forbearance or promise
Mutual Trade
Legal Value
Adequacy of Consideration
Unimportant if there is genuine assent
Unconscionable: grossly unfair or oppressive
Nominal Consideration: stated token amount
Questionable Consideration
Illusory PromisesExample: I’ll paint your house, if I have time.
Termination ClausesIllusory: Will buy only Coke, unless we change our mind.
Legal: Will buy only Coke, unless given 31 days notice.
Output ContractExample: We’ll buy all the coal you produce.
Requirements ContractExample: We’ll provide all the engines you need forproduction.
Read “What’s Your Verdict?” on page 143
Existing DutyExisting public duty
Existing private duty
Settlement of Liquidated DebtPartial Payment
Accord and Satisfaction
Release
Composition of Creditors
More Questionable Consideration False Consideration
“What’s Your Verdict?” page 145
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, promisesto leave open, bound up to 3 months
Modifications: Modification to sale of goods does notneed additional consideration
More Exceptions to Consideration
Promises barred from Collection byStatute
Statute of Limitation• Most states, 3 years for a lawsuit
Debts Discharged in Bankruptcy• May promise to repay without additional
consideration
Promissory EstoppelPrevents gross injustice, when one party hasacted in reliance of promise of other party
Preventing Legal Difficulties
Generally, both parties must give and receiveconsideration
Adequacy of consideration is usually immaterial
Accepting money in exchange for giving up a legal rightconstitutes consideration
A pledge to a charitable institution is usually bindingwithout mutual consideration
Promises to make gifts are generally not enforceable
Courts generally will not rescue you from unfavorabledeals 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 consequencesof 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 intoxicationis voluntary
Person must be so intoxicated that theydo not know they are contracting, or
Person determined to be in apermanent state of alcoholism
Lack of Contractual Capacity Options
Contract considered voidable
Disaffirmance
Contract is voided
Protected party gets back what they put intocontract, other party may not get everything back
Necessaries, only must pay what is reasonable
Ratification
Acting toward contract as if you intend to bebound by it, after obtaining contractual capacity
Timeline to Disaffirm a Contract
Period of Minority Period of Majority
Right to disaffirm Right to disaffirm
lasts for a reasonable
length of time after
majority is attained.
Contract is Ratified
Age of Majority or
Capacity Attained
Contracts that Cannot be Disaffirmed
All States
Court-ApprovedContracts
Major Commitments
Enlistment
Educational loans
Marriage contracts
Most States
Banking Contracts
Insurance Contracts
Work-RelatedContracts
Some States
Sale of Realty
Apartment Rental
Effects of Misrepresenting Age
May still disaffirm contracts
May be held liable for falserepresentation or fraud
Damages may be awarded to otherparty