ELEMENTS OF A CONTRACT

1. ELEMENTS OF A CONTRACT BUSINESS LAW CHAPTER 5

2. Objective #1 – Assess Contractual Capacity • Capacity - the legal ability to enter into a contract. • Rebuttal Presumption – With the assumption that another person has the capacity to contract, this law allows some people to say after the fact that they did not have the capacity to enter into a contract.

3. Contractual Capacity Rules and Limitations • According to the law, several types of people may have the right to disaffirm a contract: • People with mental impairments • Minors • Intoxicated Persons • Other Limits on Capacity • Convicts • Aliens • Citizens of other countries living in the U.S.

4. Objective #2 – Explain the Statute of Frauds & the Parole Evidence Rule • Statute of Frauds – a state law that requires that certain contracts be in writing. • A contract can be a letter, a sales slip, an invoice, or several words placed on a check. • A contract must identify the place, date, parties, subject matter, price and terms, and intent of the parties.

5. Contracts That Must Be In Writing • Statute of Requirements - Adds a requirement to the six elements, some contracts must be in writing to be enforceable. • Contracts to Pay Somebody Else’s Debt • Contracts to Pay Debt’s of a Person Who Has Died • Contracts Requiring More Than a Year to Perform • Contracts in Consideration of Marriage • Contracts for the Sale of Goods • Contracts to Sell Real Property

6. Special Rules for the Interpretation of Contracts • The Parole Evidence Rule – Says that evidence of oral statements made before signing a written agreement cannot be presented in court to change or add to the terms of that written agreement. • The Best Evidence Rule – Requires that the original written agreement be used as evidence in court. • Real World Rules – Read the “Fine Print”

7. Objective #3 – List Minors’ Contractual Rights and Responsibilities • Minor’s can disaffirm contracts even when they have used poor judgment. • To Disaffirm a Contract – to show the intent not to live up to the contract. • Ratification – the agreement to go along with a contract that could have been avoided.

8. Minors’ Contractual Rights and Responsibilities • Exceptions to the General Rule – Minors are held to contracts for things required by law, such as car insurance. • Minors as Drivers – Minor’s must meet certain requirements before earning a license. • Minors as Students – Students may be searched in a school setting, students may not print certain matters in a school sponsored newspaper.

9. Rights and Duties of Parents & Guardians • The law protects children from abusive parents, the state can act as a child’s parents when natural or adoptive parents cannot or will not perform their parental duties. • The law also states that both natural and adoptive parents must provide children with necessaries.

10. Objective #4 – Define Legality & Illegality • Effect of Illegality – a court will not help any party to an illegal contract. • Illegality in Entire Agreement –if a contract cannot be divided, then anything illegal makes the entire contract illegal. • In Pari Delicto and Divisible Contracts – If the contract is divisible, the court may enforce parts of the agreement that are legal and cancel the parts that are not.

11. Agreements That Break Statutes • Laws that make some agreements illegal because they violate the state’s civil or criminal statutes. • Civil & Criminal Statutes • Usury Statutes • Gambling Statutes • Sunday Statutes • Licensing Statutes

12. Agreements Contrary to Public Policy • Public Policy – a legal principle that holds that nobody should be allowed to do something that harms the public. • Agreements that Unreasonably Restrain Trade • Agreements Not to Compete • Agreements for Price Fixing • Agreements to Defeat Competitive Bidding

13. Agreements Contrary to Public Policy • Agreements to Obstruct Justice • Agreements Inducing Breach of Duty or Fraud • Agreements to Gve Up the Right to Litigate or Arbitrate • Agreements Interfering with Marriage

14. Business Law Chapter 5 - Consideration

15. Objective #5 – Analyze the Requirements for Valid Consideration • Consideration – the exchange of benefits and detriments by the parties to a contract. • A benefit is something a party receives in the agreement. • A detriment is something a party gives up in the agreement. • Forbearance – not doing what you have the right to do.

16. Requirements for Valid Consideration • Each side in the agreement must give up something and get something in exchange.

17. Characteristics of Consideration • Bargained-for Exchange – when a promise is made in return for another promise, or when an act is exchanged for an act or a promise not to act. • Something of Value – The law does not set value in a contract, all that matters is that both parties agree freely on the value and the price

18. Characteristics of Consideration cont. • Something of Value cont. • Unconscionable contract – an agreement in which the consideration is so out of line with the actual value of the subject matter and so unfair it shocks the court’s conscience. • Adhesion Contract – a take-it-or-leave-it offer made by a party who holds most of the power in a bargaining session. • Legality & Unconscionability – the law requires that the consideration that passes from one party to another be legal.

19. Objective #6 – Define the different types of Consideration • Money as Consideration • Property and Services as Consideration • A promise not to sue • Charitable Pledges

20. Problems with Consideration • Disputed Amounts – When the parties disagree on how much money is due: Accord and Satisfaction is a legal way to settle contractual disputes by which one party agrees to accept less than the amount due as full payment. • Undisputed Amounts – If the parties have agreed to a set amount, then accord and satisfaction does not apply.

21. Objective #7 – List Exceptions to the Requirements of Consideration • Promises Under Seal • Promises After Discharge in Bankruptcy • Debts Ended by the Statute of Limitations • Promises Enforced by Promissory Estoppel • Promissory Estoppel – the principle that a promise made witouth consideration may nonetheless be enforced to prevent injustice. • Option

22. Agreements Without Consideration • Illusory Promises • Future Gifts and Legacies • Past Consideration • Preexisting Duties • Promise to Attend a Social Engagement

23. Objective #8 – Compare Unconscionability & Illegality • Illegality - If consideration is illegal, the contract is void. • Unconscionability – consideration may be legal but unconscionable because the amount paid is so unfair that it shocks the conscience of the court.