ESSENTIALS OF A CONTRACT
The essential elements of a contract are
briefly as follows:
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 obligations which each
party understands and 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 consideration 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.
COMPETENCY OF CONTRACTING PARTIES
Classifications:
1) Infants (minors)
2) Persons of unsound mind
3) Drunken persons
4) Persons under legal guardianship
5) Corporations
6) Convicts
7) Enemy aliens
8) Federal and state government
9) Foreign countries and their sovereigns
10) Professional persons who are required by
law to register and to be licensed.
1.) INFANT
• any person who is below the age at which
one assumes certain legal obligations and
privileges such as voting and competency
to contract
• are competent to sign contracts for
necessities, although exactly what
constitutes a necessity may be subject to
question.
• an infant is liable for necessities furnished
his wife and, in some jurisdictions, for
necessities for the children
• if an infant avoids a contract on which he
has received money or property, he must
restore it if it is in his power to do so
2.) Persons of Unsound Mind
•
not a void contract but is voidable, at the
option the insane person, or the person
of unsound mind, or at the option of his
legally appointed guardian, with the
following exceptions:
a) Contracts created by law are valid and
binding, and
b) Contracts are valid and binding where the
sane person acted fairly and in good faith
and without any knowledge
• contracts made by an insane person are
simply voidable and may be ratified by
such insane person when he becomes
sane or may be ratified by his guardian
during his insanity or by his heirs after
death
3.) Drunken Persons
• contracts made by a drunken person when
in such state of intoxication as to be
entirely unable to understand its nature
and effect are voidable in his favor except
that he liable on contracts created or
implied by law
4.) Persons under Legal
Guardianship
• are limited in their ability to enter into
contracts in a manner similar to minors,
persons of unsound mind, and drunken
persons
5.) Corporations
• an artificial person created by law and is
limited in its ability to enter into contracts
by its articles of incorporation and by-laws
and by general statutes limiting the powers
of corporations
• a contract with a corporation must be a
contract which it is authorized to make and
which is within the scope of its corporate
powers as set forth in its articles of
incorporation
6.) Convicts
• in some jurisdictions those serving a
penitentiary sentence have their
competency to contract suspended and
have a trustee appointed to supervise their
property
7.) Enemy Aliens
• In general, enemy aliens cannot contract
or sue under existing contracts without the
permission of the government; but they
may be sued on existing contracts, and in
this case have a right to answer the suit.
8.) Federal and State
Governments
• with certain restrictions
• procedures to be used and frequently even
the form of contract are rigidly specified by
law
• a contract with the government is signed by
an official who is specifically authorized to
perform the function, and contracts outside
the scope of specific authorization are void
even he signs them
9.) Foreign Countries and
Their Sovereigns
• may make contracts and may enter suit
under these contracts in our domestic
courts, but they may not sued in such
courts without their consent
10.) Professional Persons
• In most states persons practicing the
skilled professions where the health,
safety, or welfare of the public is involved
are required by law to register and obtain
a license as a prerequisite to the practice
of their profession.
Agency
• the validity of such contracts depends
upon the authority granted to the agent,
which may be expressed and in writing
For example, a clerk in a store has
ostensible authority to sell goods carried in
stock, but would have none to sell the
owner’s pleasure boat at a different
location
Mutual Agreement
•
it is important to the validity of a contract
that the parties to the contract agree, and
they must agree to the same thing.
Contractual Relations:
a) Offer and acceptance
b) Times of acceptance
c) Method of Acceptance
d) Revocation
e) Misinterpretation
f) Fraud
1) Offer and Acceptance
• this offer must be accepted without
qualification and without change, or there
is no contract
Example:
If Mr. Tan offered to enter into a contract
with Mr. Maningo, whereby Mr. Tan was to
pay Mr. Maningo $500 to design a drainage
system for Mr. Tan’s farm, the said designs to
be completed by March 1, and Mr. Maningo
accepted this offer with the provision that he
would design such drainage system for
$600, the same to be completed by April 1,
there would be no contract, as the terms of
Mr. Tans’s offer were not accepted as they
were given but were modified by Mr.
Maningo.
2.) Time of Acceptance
• The offer must be accepted with in a
reasonable time, and where a time limit is
fixed in such offer, it must be accepted
before such time limit expires.
Example:
Mr. Ugsimar wires offering Mr. Lobingco
1,000 bushels of winter wheat at $2.75 a
bushel f.o.b. Minneapolis. Mr. Lobingco waits
a week until the price of winter wheat has
gone to $3.00 a bushel and wires an
acceptance of the offer. The courts would
hold that with a commodity such as wheat
which was subject to sudden changes in
market place, a week would be an
unreasonable time and an acceptance at the
end of that time would not constitute the
contract
3.) Method of Acceptance
• If an offer of a contract is made and
specifies that the acceptance must be by
wire, an acceptance in person or by letter
does not constitute a contract ; and if the
offer specifies a place of acceptance,
acceptance at any other place is not
sufficient.
Example:
Mr. Cañete writes a letter to Ms. Blaco on
January 18, offering him 10,000 bushels of
wheat at $2.75 per bushel f.o.b. Minneapolis.
Ms. Blanco wires back to Mr. Cañete on
January 19, stating: “Your offer in letter of
January 18 accepted. Letter follows.” He then
writes Mr. Cañete the same day accepting his
offer of 10,000 bushels of wheat at the
specified price. These letters and telegrams
constitute a valid and binding contract
enforceable at law.
4.) Revocation
• An offer is revoked by the death or insanity
of the person making the offer; but if the
offer is accepted prior to the death or
insanity of the person making the same,
this constitutes the contract which is
binding on the executors, provided for the
contract was not for personal services.
5.) Misinterpretation
• If one party to a contract makes a
statement which is in fact untrue but he
believes to be true, and this fact is a
material fact or element in the contract,
and other party.
6.) Fraud
•
a false representation of a material fact or
nondisclosure of a material fact under such
circumstances that it amounts to a false
representation
Essential elements of fraud:
a) A false representation of a material
fact.
b) The representation must be as to a
past or present act.
c) It must be of a material act, and a
misinterpretation of an immaterial fact,
even if made with fraudulent intent,
does not constitute fraud.
d) The party making the statement
must know it to be false.
e) It must be made with intention that
will be acted on by the party.
f) It must be relied upon by the other
party and induce him to act.
g) The other must have suffered
damage thereby.
7.) Duress
• If a person is compelled to sign a contract
at the point of a gun or through threats of
violence to him or someone whom he
holds dear, he cannot be said to have
consented to the contract, but has been
caused to enter into it by duress.
8.) Undue Influence
• consists in taking advantage of a special
trust or confidence which is reposed in one
to caused or induce the person so trusting
or having confidence in him to enter into a
contract which is unfair to such person