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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 agreement
Competent parties
Consideration
Lawful purpose
Any 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.
• In a 1-2 page Microsoft Word document, explain the
concepts related to the weekly lecture and readings in
connection with this case study.
• Joseph got into some trouble with the police when he was
a teenager. He dropped out of college and did not have a
steady job at age 22. Joseph's grandfather was very
concerned, so he promised Joseph that if he got a steady
job, did not break the law again, and would go back to
college, he would pay Joseph $20,000. Would the various
promises on Joseph's part would constitute valid
consideration for the payment of the $20,000? Explain
some of the issues of law that may affect the outcome of
this case.
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.