Creating an Enforceable Contract

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Creating an Enforceable Contract

• OBE 118, Section 10
• Fall 2004

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Six Elements of a Contract

• Agreement
• Consideration
• Capacity
• Legality
• Genuineness of assent
• Writing and Form

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Acceptance Complications I

• Revocation versus Acceptance

Acceptance rule acceptance by authorized manner
effective when . (also called the mailbox
rule)
Authorized manner (General rule) same means that
offeror used or one that is commercially
reasonable and quicker.
Revocation rule Revocation is effective when .
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Acceptance Complications II

• Accepting a Unilateral Contract

Rule A unilateral contract is accepted by
performing and once performance has commenced the
offeree has a reasonable period of time to
complete performance
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Consideration

• Consideration is our second element of a valid
  enforceable contract and requires that something
  of legal value be given in exchange for a promise
  as a result of a bargained-for exchange.

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Reciprocal Consideration

• We call the requirement reciprocal
  consideration because for each promise there
  must be corresponding consideration that makes
  that promise enforceable

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Consideration Legal Value

• A legal detriment

• Dollar cost
• Doing or promising to do something that there
  was no prior legal duty to perform
• Forbearance

• No requirement that each side give up
  something of equal value

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Consideration Complications

• Pre-existing duty

• Unforeseen difficulties situations

• Past consideration

• Illusory promises

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Settlement of Debts

• Fact pattern A party agrees to accept less than
  is owed.
• Issue When is such a promise enforceable?

Is the debt liquidated or unliquidated?
If the debt is unliquidated, then surrendering
the right to claim a lower or higher amount than
agreed upon can constitute consideration and make
the promise enforceable
Is a written release involved?
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Reciprocal Consideration

• We call the requirement reciprocal
  consideration because for each promise there
  must be corresponding consideration that makes
  that promise enforceable

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Consideration Legal Value

• A legal detriment

• Dollar cost
• Doing or promising to do something that there
  was no prior legal duty to perform
• Forbearance

• No requirement that each side give up
  something of equal value

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Consideration Complications

• Pre-existing duty

• Unforeseen difficulties situations

• Past consideration

• Illusory promises

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Promissory Estoppel

• Fact pattern A party relies on a promise to
  their detriment but no consideration was given.

Issue Is there another means to enforce the
promise?
Elements of Promissory Estoppel
1) A promise
2) Justifiable reliance on the promise
3) Substantial and definite reliance
4) Enforcing the promise serves the interests of
justice
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Capacity
Issues
1) Minority
2) Mental Incompetence
3) Intoxication
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Legality

• Legality is our fourth element of a contract and
  failure to meet this element often renders a
  contract void

1. Contracts calling for an illegal or tortious
act
2. Contracts against public policy
3. Licensing Statutes
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Legality

• If an agreement were to be enforced, would it
  violate
• Written Law
• Common Law?
• ? Public Policy?

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Illegal Acts

• Contracts calling for violation of federal or
  state statutes are void

1. Usury -
2. Gambling -
3. Licensing statutes
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Restraint of Trade

• Contracts that interfere with or inhibit free
  trade are usually against the public interest

Violation of Antitrust Laws -
Covenants Not to Compete
A covenant not to compete can be valid and
enforceable if it is reasonably limited in time,
scope, and distance.
1.
2.
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Genuineness of Assent

• Genuine Assent is our fifth element of a contract
  and requires that their be a true objective
  meeting of the minds.

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The Defenses of Genuine Assent

• Genuine Assent is our fifth element of a contract
  and requires that their be a true objective
  meeting of the minds.

Many defenses make up this element
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Bilateral Mistakes

• Must be a bilateral mistake of a material fact!

Bilateral Both parties
Material Important and central to contract
Fact Not value, opinion, etc.
EFFECT
Example
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Fraud

• Fraudulent in the factum

Tricked into signing wrong document

• Fraudulent Misrepresentation

False statement to induce signing correct document
Basic Elements to be Voidable

1. Misrepresentation of a material fact
2. Intent to deceive
3. Justifiable reliance
4. Injury from the reliance

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Writing and Form

• Some contracts must be evidenced in writing to be
  enforceable. This is the last element of a
  contract.

Statute of Frauds
1) Interests in land (sale, lease, mortgage,
easement)
2) gt 1 Year performance
3) Paying debt or performing duty of another
4) Sale of Goods gt
5) Promises for marriage
6) Executor of estate assuming debt personally
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Written Evidence

• 1) Signed by party against whom enforcement
  sought

2) Contain essential terms of contract
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Parol Evidence Rule

• When a contract is expressed in writing, oral
  negotiations, promises, or terms prior to the
  writing are not usable to prove the contracts
  terms

Exceptions
1) Later changes
2) Evidence to show contract is voidable or void
3) Unclear terms- to show meaning
4) Incomplete contract- to fill gaps
5) Show obvious or gross clerical error
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A Valid Enforceable Contract

1. Mutual Agreement
2. Consideration
3. Capacity
4. Legality
5. Genuineness of Assent
6. Writing