1. Creating an Enforceable Contract OBE 118, Section 10 Fall 2004

2. Six “Elements” of a Contract Agreement Consideration Capacity Legality Genuineness of assent Writing and Form

3. 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 ….

4. 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

5. 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.

6. Reciprocal Consideration We call the requirement “reciprocal consideration” because for each promise there must be corresponding consideration that makes that promise enforceable Party A Party B

7. Consideration: Legal Value Dollar cost Doing or promising to do something that there was no prior legal duty to perform Forbearance A legal detriment No requirement that each side give up something of equal value

8. Consideration Complications Pre-existing duty Unforeseen difficulties situations Past consideration Illusory promises

9. 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?

10. Reciprocal Consideration We call the requirement “reciprocal consideration” because for each promise there must be corresponding consideration that makes that promise enforceable Promise Consideration Party A Party B Promise Consideration

11. Consideration: Legal Value Dollar cost Doing or promising to do something that there was no prior legal duty to perform Forbearance A legal detriment No requirement that each side give up something of equal value

12. Consideration Complications Pre-existing duty Unforeseen difficulties situations Past consideration Illusory promises

13. Promissory Estoppel Fact pattern: A party relies on a promise to their detriment but no consideration was given. 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 Issue: Is there another means to enforce the promise?

14. Capacity Issues: 1) Minority 2) Mental Incompetence 3) Intoxication

15. 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

16. Legality If an agreement were to be enforced, would it violate:  Written Law  Common Law?  Public Policy?

17. Illegal Acts Contracts calling for violation of federal or state statutes are void 1. Usury - 2. Gambling - 3. Licensing statutes –

18. 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.

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

20. The Defenses of Genuine Assent Many defenses make up this “element” Genuine Assent is our fifth element of a contract and requires that their be a true objective meeting of the minds.

21. 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:

22. Fraud 1)Misrepresentation of a material fact 2)Intent to deceive 3)Justifiable reliance 4)Injury from the reliance Fraudulent in the factum False statement to induce signing correct document Fraudulent Misrepresentation Tricked into signing wrong document – Basic Elements to be Voidable

23. Writing and Form Some contracts must be evidenced in writing to be enforceable. This is the last “element” of a contract. “Statute of Frauds” 6) Executor of estate assuming debt personally 2) > 1 Year performance 3) Paying debt or performing duty of another 4) Sale of Goods >$ 5) Promises for marriage 1) Interests in land (sale, lease, mortgage, easement)

24. “Written Evidence” 1) “Signed” by party against whom enforcement sought 2) Contain essential terms of contract

25. 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 contract’s terms 1) Later changes* 2) Evidence to show contract is voidable or void* 3) Unclear terms- to show meaning “Exceptions” 4) Incomplete contract- to fill gaps 5) Show obvious or gross clerical error

26. A Valid Enforceable Contract 1)Mutual Agreement 2)Consideration 3)Capacity 4)Legality 5)Genuineness of Assent 6)Writing