Essentials of Contract
1. There must be two or more competent contracting parties.
2. There must be a mutual agreement on the part of all parties to the
contract to assume new obligation which each party understands ad
which are possible for the parties to perform.
3. There must be a valuable consideration for each of
the parties to the contract, and the considerations
must be reasonably equal in value.
4. The obligations which the parties to the contract undertake must be
for legal acts which are not contrary to sound public policy.
5. The contract must be set forth according to the form and executed in
the manner prescribed by law.
There Must be a Lawful and Sufficient
Valuable Considerations.
Considerations
• Good
• Valuable
Good Consideration
- based on love, affection, or blood relationship
- founded on generosity or natural duty
- not sufficient to support an executory contract
Valuable Contract
- the law holds that there has been something equivalent
given for the act or promise, such as money, labors, a
deed to land, exchange of promises to do something of
value, etc.
What Constitutes a Valuable Consideration…
- a person must give promise of something or an act
of value in exchange for a promise of another thing.
•An act of value is an valuable consideration.
Gift
A mere promise of a thing of value is simply a promise of
a gift, is not founded on a valuable consideration unless there is
something of value given in return; but if the promise is carried
out and completed by the delivery of the thing, this amounts to a
gift which, as between the parties, cannot be reclaimed.
Sufficiency of Consideration..
When the contract is founded on a valuable
consideration, the courts will not require into the sufficiency
of the consideration. That is, it is not necessary to the validity
of the contract that the exchange which constitutes the
consideration should be things, acts, or promises of equal
value, excepting where a contract is for the exchange of sums
of money.
The Subject Matter of the Contract Must be Lawful and
not Contrary to the Sound Public Policy
Principal classes of contract opposed to law or to public policy are:
1. Contacts for the sale of public office, public contracts, or for the
bribing of public officials.
2. Contracts which tend o deprive the court of jurisdiction or to
compound a crime.
3. Contracts which tend to encourage litigation.
Example.
Bianca, knowing that Rica has a good case against Trina,
contracts with Rica that if Rica will bring suit against Trina, Bianca
will furnish to prosecute the suit and share whatever is received from
Trina as a result to such suit.
4. Contracts for the committing of a crime or a tort.
5. Agreements tending to promote fraud and breach of trust.
Example.
Nadine, an engineer, agrees with Paula, a contactor, that if
Nadine will use her position as engineer of a large project to have
awarded to Paula, and that she Nadine, is to get a commission for
such influence.
6. Contracts which unduly affect the freedom or security of
marriage.
7. Contracts is unreasonable restraint of trade and which tend to
suppress competition at letting or sale by auction.
Example.
An agreement not to bid at a public auction, if made for the
purpose of stifling competition, is unlawful.
A general assignment or agreement to assign all inventions
thereafter made by a party is not only contrary to public policy but is
void under the patent laws of the United States. But a contract to
assign future inventions is valid where it relates to a particular subject
and imposes only such restraint upon the assignor as is fairly and
reasonably necessary for the protection of the assignee under all the
circumstances of the case. An illustration of such a reasonable and
valid contract for the sale of letters patent for a machine “together
with all improvements I may hereafter make.”
8. To pay a usurious rate of interest.
Example.
The laws of a state provide that no greater rate of interest of
the agreed upon or received than 10 per cent per year. Pixie and
Dixie agree upon a rate of interest of 12 % per year. This contract is
void as it is usurious, and the court will not enforce the contract.
9. Any agreement the object of which is to injure the public
health or safety.
Example.
If a contract is made, the object of which is to obstruct
drainage and produce unhealthful conditions and thereby depreciate
the value of adjacent property, such contract is unlawful since it is an
agreement prejudicial to public health and consequently is against
public policy.
10. Agreements to establish unlawful monopolies, trusts, etc.
Example.
If dealers in a necessary commodity combine for the purpose
of controlling the output of such commodities and increasing the price
thereof, the agreement to combine is unlawful as against public policy,
it being a combination monopoly or trust for the purpose of
establishing a restraint on trade.
Legal Requirements as to Form.
There are legal requirements in most jurisdiction as to form which
certain contracts must take. Certain information which must be included
may be specified, or the requirement may only be that the contract shall
be in writing.
Negotiable instruments consist primarily of promissory notes, bills
of exchange, bank drafts, and bank checks. These in general must be in
writing and must include the signature of the maker or drawer and an
unconditional promise to pay a fixed sum of money they must further be
payable on demand or on some fixed and stated future date; must be
payable to the bearer or to the order of the payee; and if a drawee is
involves, he must be clearly indicated or named.
Other matters that Require a Contract to be placed in Writing:
1. A special promise by an executor or administrator to render himself
personally liable for the debts of the deceased.
2. Any special promise to answer for the debts, defaults, or miscarriages of
another person.
3. Any agreement made upon the consideration of marriage.
4. Any contract he terms of which cannot be performed within one year.
5. Any contract for the sale of any interest in land or for the leasing of land for a
period of more than a year.
6. Contracts for the purchase of goods, wares, or merchandise for a price
equal to or higher than the amount fixes by statute. This amount was
formerly usually $50 but is now $500. There are certain circumstances which
will void this requirement. The requirements voided if the buyer accepts all or
a part of the goods and actually receives them, if the buyer gives a part
payment or something of value in earnest, or if a note or memorandum in
writing setting forth the bargain is signed by the parties involved.
Interpretation of Contracts.
Rules in Determining Intentions:
The intention will be gathered from the entire contract; and if there
is a contradiction between printed and written parts thereof; he written part
is will govern.
If the contract is capable of two interpretations, one of which would
render it void or incapable of performance and the other valid or capable of
performance, the latter construction will be given their technical meaning.
Words are given their plain or literal meaning except that evidence
of local usage may vary their meaning, and technical words will be given
their technical meaning.
If there is doubt as to the meaning, he technical words will be given
their technical meaning.
Penalties and Liquidated Damages.
Contracts often provide that is case of breach of the contract,
the party aggrieved may collect from the other party a certain amount as
liquidated damages, or simply damages. The courts will give effect to
the intention of the parties provided the amount states is, as a matter of
fact, liquidated damages and not penalty.
In determining whether it is fact liquidated damages, the courts
will pay no attention to what he parties to the contract have called it. If
the amount of damage is readily attainable and the amount stipulated is
very much excess of this amount, it will be deemed a penalty and
therefore not enforceable. If it is indefinite and of uncertain value, the
sum stipulated will be liquidated damages It is not penalty to make a
debt, payable in installments, payable in whole on the failure to pay an
installment when due.
End.