6 Elements of Legally Enforceable Contracts
1. Offer and Acceptance
Law of Contracts
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)
Jests
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
Invitations to Negotiate
Statements Made in
Anger or Terror
Social
Agreements
Termination of Offer before Acceptance
You Make the Call
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
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
Acceptance
Only offeree can accept
Must match the offer
Must be communicated to offeror
Communication of Acceptance
6 Elements of Legally Enforceable Contracts
1. Offer and Acceptance
Silence as Acceptance (not legal)
Bilateral Acceptance
2. Genuine Assent
Both sides promise an action
Unilateral Acceptance
3. Consideration (Exchange of value)
Performance is acceptance
4. Capacity to Contract
Communication may be in any reasonable
manner
Acceptance is effective when sent, unless
specified otherwise.
5. Legal Purpose
6. In writing (when required)
Lack of Genuine Assent
Unilateral
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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
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.
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
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
Contracts that Cannot be Disaffirmed
Enlistment
Educational loans
Marriage contracts
Age of Majority or
Capacity Attained
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
Acting toward contract as if you intend to be
bound by it, after obtaining contractual capacity
All States
Court-Approved
Contracts
Major Commitments
Timeline to Disaffirm a Contract
Most States
Banking Contracts
Insurance Contracts
Work-Related
Contracts
Some States
Sale of Realty
Apartment Rental
Effects of Misrepresenting Age
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