Business Law - Unit 6

Contract Law

Agreement that can be enforced in court

Objective Theory of Contracts

Courts look at outward actions and words, not secret intentions

Four Elements of a Valid Contract

Agreement, Consideration, Capacity, Legality

Agreement

Offer and acceptance

Offer Requirements

Serious intent, definite terms, communication

Serious Intent

Determined by what a reasonable person would believe

Definite Terms

Terms clear enough for a court to enforce

Communication of Offer

Offer must be communicated to the offeree

Acceptance

Voluntary agreement to the offer

Mirror Image Rule

Acceptance must match the offer exactly

Counteroffer

Rejection of the original offer and creation of a new offer

Silence as Acceptance

Generally not acceptance

Consideration

Something of value exchanged between parties

Purpose of Consideration

Distinguishes a contract from a gift

Capacity

Legal ability to enter a contract

Who May Lack Capacity?

Minors, intoxicated persons, mentally incompetent persons

Age of Majority

Generally 18

Minor's Contract

Generally voidable by the minor

Disaffirmance

Minor avoids a contract

When Can a Minor Disaffirm?

During minority or within a reasonable time after reaching majority

Ratification

Acceptance of a contract after reaching majority

Examples of Ratification

Continuing payments or performance after turning 18

Necessaries

Food, clothing, shelter, and similar essentials

Parents' Liability

Generally not liable for children's contracts

Intoxicated Person Standard

So impaired they cannot understand the consequences of the contract

Mental Incompetence (Adjudicated)

Contracts are void

Mental Incompetence (Not Adjudicated)

Contracts are generally voidable

Legality

Contract must involve a legal purpose

Illegal Contract

Void and unenforceable

Contract to Commit a Crime

Illegal and unenforceable

Licensing Statutes

Some contracts with unlicensed professionals may be unenforceable

Lucy v. Zehmer

Farm sale dispute involving intoxication and intent

Lucy v. Zehmer Holding

A valid contract existed

Lucy v. Zehmer Key Rule

Objective actions matter more than secret intentions

Evidence Supporting Lucy

Written agreement, signatures, detailed negotiations, specific terms

Evidence Supporting Zehmer

Alcohol consumption and claim that he was joking

Wright v. Newman

Child support case involving promissory estoppel

Wright v. Newman Holding

Wright could be required to support the child

Promissory Estoppel

A promise may be enforced when another person reasonably relies on it

Requirements for Promissory Estoppel

Promise, reliance, detriment, and injustice without enforcement

Purpose of Promissory Estoppel

Prevent injustice caused by reliance on a promise

Void Contract

No legal contract exists

Voidable Contract

Valid contract that one party may choose to avoid

Unenforceable Contract

Valid contract that cannot be enforced because of a legal defense