Week 04

Agreements and Contracts

Contracts

• A contract is a legally enforceable agreement between two or more competent persons.

• A valid contract is one that is enforceable by the courts and it has five requirements:

Mutual agreementCompetent partiesConsiderationLawful purposeAny formal requirements

• All contracts are agreements, but not all agreements are contracts; only those agreements enforceable by law are contracts.

Contracts are classified as:

• Valid contracts, void agreements, and voidable contracts

• Express and implied• Formal and simple• Executory and executed• Unilateral and bilateral

Types of Contracts

• A void agreement is one that is of no legal effect.• A voidable contract is one that may be set aside

by at least one of the parties.• An express contract is one in which the parties

express their intentions by words at the time of the agreement.

• An implied contract is one in which the duties and obligations that the parties assume are not expressed but are implied by their acts or conduct.

Types of Contracts Continued

• A formal contract is one that must be in a special form or be created in a certain way.

• A simple contract is a contract other than a formal contract.

• An executory contract is one in which the terms have not been fully carried out by all parties.

• An executed contract is one in which the terms have been fully carried out by all parties.

Types of Contracts Continued

• A contract in which an act is done in consideration for a promise is a unilateral contract.

• A bilateral contract consists of a mutual exchange of promises to perform some future acts. Each promise is consideration for the other.

• A quasi contract is the imposition of rights and obligations by law when no real agreement exists.

Agreements

An agreement is reached when one party makes an offer and the other party accepts the offer. The intention of one party to make or to accept an offer may be inferred from acts if a party's conduct leads the other party reasonably to believe an offer is made or an acceptance is intended.

There are three requirements of a valid offer:

• The offer must be definite.• The offer must be seriously intended. If it is made

in jest, banter, fear, or extreme anger, it ordinarily is not an acceptable offer.

• The offer must be communicated to the offeree.

Duration of an offer is affected by the following factors:• An offer may be revoked by the offeror at any time prior to

acceptance.• An option cannot be revoked at will.• Revocation of an offer must be communicated to the

offeree prior to acceptance.• An offer is revoked by the lapse of the time specified in the

offer.• Death or insanity of the offeror before acceptance revokes

the offer.• Rejection of an offer by the offeree and communication of

the rejection to the offeror terminates the offer.• Illegality of the contract after the offer has been made

terminates the offer.

A proper acceptance of an offer creates a contract.

• The acceptance may be by words, oral or written, or by some act which clearly shows an intention to accept.

• Silence seldom constitutes an acceptance.• If the offer stipulates how acceptance must be

made, these stipulations must be met for the acceptance to be valid.

Agreements and the Law

• In order that an agreement may be enforceable at law, all parties must have the legal and mental capacity to contract.

• Those whom the law considers at least in some degree incompetent to contract are:

• Minors• mentally incompetent persons• intoxicated persons• convicts.

Disaffirmance

• Disaffirmance means the repudiation of a contract.• A minor has the legal right to disaffirm a voidable

contract at any time during minority or within a reasonable time after becoming of age.

• If the contract is wholly executory, a disaffirmance completely nullifies the contract.

• A minor, upon electing to disaffirm the contract, must return whatever was received, provided it is still in the minor's possession.

Ratification

• Ratification is indicating one's willingness to be bound.

• A minor may ratify a voidable contract only after the minor has attained majority.

• A contract cannot be ratified in part and disaffirmed in part; all or none of the contract must be ratified.

Consideration

Consideration is whatever the promisor demands and receives as the price for a promise.• Consideration may be another promise.• For a promise to be consideration, the promise

must impose an obligation upon the person making the promise.

• Consideration may be the performance of an act or the making of a promise to refrain from performing a lawful act.

Invalid Consideration

There are three kinds of consideration that are deemed invalid:• If consideration in an agreement consists merely

of a promise to do what one is already legally obligated to do, there is no valid consideration.

• Refraining from doing something is called forbearance. When forbearance consists of refraining from doing what one has no right to do, that is an invalid consideration.

• An act performed prior to the promise does not constitute valid consideration.

Consideration of Contracts

There are several exceptions to the requirement of consideration for a contract: • voluntary subscriptions• debts of record• promissory estoppel• modification of sales contracts.

Undue Influence

Undue influence is the exercise of such influence over the mind of another that the latter does not exercise free will. It renders the contract voidable by the injured party.

Remedies

Remedies for breach of contract because of mistake, fraud, duress, or undue influence are:• A lawsuit for recovery of any money, goods, or

other things of value, plus damages• Refusal to perform if the contract is executory on

the part of the innocent party• A suit to have the contract judicially declared

void and to recover damages• A suit for reformation of a written contract that

does not express the parties' agreement.