Contracts and Contract Law The Elements of a Contract

a contract, including offer and acceptance. Learning Goal To recognize the elements of a contract, including offer and acceptance.

Contract Any agreement enforceable by law. Does NOT have to be written!!! To be legally complete, a contract must contain 6 Elements.

6 Elements of a Contract

#1: Offer A proposal made by one party (offeror) to another party (offeree) indicating a willingness to enter a contract.

3 Requirements of an Offer Serious Intent Not merely an “invitation to negotiate” like an advertisement. Definiteness and Certainty Vague conditions are not legally enforceable. Communication to the Offeree MUST be communicated to be legal

#2: Acceptance The agreement of the offeree to be bound by the terms of the offer.

Requirements of Acceptance Unconditional Acceptance Must NOT change the terms of the original offer in ANY way. If a change is made, it is a “counteroffer” and the original offeror is not obligated to accept. Must follow the rules regarding the Methods of Acceptance

Methods of Acceptance When negotiating long-distance: Acceptance is effective when sent Any communication qualifies Acceptance is implied when using the same speed as the offeror Some offers/acceptances can be implied Some offers require specific performance

Termination of an Offer Revocation – offeror terminates Rejection – offeree terminates Counteroffer Expiration of Time Death or Insanity

Contracts and Contract Law The Elements of a Contract

a contract, and what makes a defective agreement. Learning Goal To recognize the elements of a contract, and what makes a defective agreement.

6 Elements of a Contract (continued)

#3: Genuine Agreement When a valid offer is met by a valid acceptance. “A meeting of the minds.” When Offer and Acceptance are both present . . . but . . . Agreement can be destroyed if it is found to be not genuine.

Defective Agreements Concealment – Choosing not to reveal important information that a party is obligated to reveal. Innocent Misrepresentation – Making an innocent statement that turns-out to be false. The victim may rescind the contract, but can NOT collect any damages.

(Defective Agreements) Mistake – Entering a contract with the belief that certain things are true, which are in fact not true. Unilateral Mistake – An error on the part of one party. The mistaken party might not be able to get out of the contract! Bilateral Mistake – An error on the party of both parties. Either party can get out of the contract!

(Defective Agreements) Duress – Overcoming a person’s will by use of force or by threat. Physical Duress Emotional Duress (threat of physical force) Economic Duress Threatening legal action is NOT a form of Duress!!!

(Defective Agreements) Undue Influence – When a person uses unfair or improper persuasive pressure to force someone to enter into an agreement. A Dependency Relationship Unfair or Improper Pressure A Beneficial Contract

(Defective Agreements) Fraud – Deliberate deception intended to secure an unfair or unlawful gain. Fraud MUST contain 5 Elements!!! Must be a false representation of fact. The party making it must know it is false.

(Defective Agreements) . . . 5 Elements of Fraud . . . The false representation must be made knowing it is relied upon by the other party. The innocent party must reasonably rely upon the false representation. The innocent party must actually suffer some monetary loss.

Contracts and Contract Law The Elements of a Contract

6 Elements of a Contract (continued)

a contract, including capacity, consideration and legality. Learning Goal To recognize the elements of a contract, including capacity, consideration and legality.

#4: Capacity The legal ability to enter a contract. Minors Mentally Impaired Persons Intoxicated Persons Aliens & Convicts

Minors Contracts are voidable if the minor chooses. Even if the minor has damaged an item purchased. Necessities are an exception Minor lies about age = FELONY Contracts are ratified when minor becomes an adult, and continues contract.

Mentally Impaired Contracts are voidable If declared insane or incompetent by a court, and a guardian is appointed, contracts are all valid.

Intoxicated Persons Sometimes able to disaffirm a contract, if intoxicated at the time the contract was entered. Must have been so intoxicated at the time as to not understand the purpose, nature or effect of the agreement. A court decides the person’s condition.

Aliens & Convicts Limitations placed on contracts. Foreign-born people from non-allied countries are denied legal capacity during war. Sometimes there are limitations during peace. All states differ in limitations on these people.

#5: Consideration A thing of value promised to one party in exchange for another thing of value. Giving up something you have the legal right to keep. Doing something you have the legal right to not do. Not doing something you have the legal right to do.

Types of Consideration Money Property and Services Promise not to Sue “Forbearance” Lawsuits are often settled in this way Charitable Pledges Legally enforceable – no matter how small!

#6: Legality Parties are not allowed to enforce contracts that involve illegal acts by crime, tort or statutory law. This is called “conspiracy” Can apply to entire contracts, or to parts of contracts.

a contract, including capacity, consideration and legality. Learning Goal To recognize the elements of a contract, including capacity, consideration and legality.