Legal Contract Elements: Validity, Enforcement, and Exceptions in Business Law

Lawful Purpose (Effect)

A contract is void and unenforceable if its subject, consideration, or performance is illegal or against public policy/ethics.

Criminal Conduct

Contracts involving illegal activities are void.

Torts

Contracts involving civil wrongdoing are unenforceable.

Usury

Charging excessively high interest rates makes a contract illegal.

Interference with Standards of Justice

Includes conflict of interest or unlawful discrimination; makes contract void.

Restraint of Trade Agreements

Agreements limiting free market competition may be unenforceable.

Resale Price Contracts

Usually unenforceable; prices should follow supply and demand.

Covenants Not to Compete

Valid only if they have a legitimate business purpose and reasonable time/geographic limits.

Unconscionable Contracts

Grossly unfair or one-sided contracts are unenforceable.

Exculpatory Clauses

Clauses limiting liability may be unenforceable if unfair.

Adhesion Contracts

Standardized contracts that are overly one-sided may be invalid.

Lack of License (Revenue Law)

Contract still valid if license is for revenue purposes only.

Lack of License (Regulatory Law)

Contract is unenforceable if license is required for public protection.

Fraud

Misrepresentation or concealment of facts; requires reliance.

Sales Puffing

Exaggeration is allowed; false facts are not.

Silence (Fraud)

May be fraud in cases of latent defects or required disclosure.

Unilateral Mistake

Contract rescindable only if the other party knew or should have known.

Bilateral Mistake

May allow rescission depending on circumstances.

Mistake of Value/Quality

Cannot rescind contract.

Mistake of Law

Cannot rescind contract.

Mistake of Identity/Existence

Contract can be rescinded.

Duress

Contract entered under threat of harm is unenforceable.

Blackmail

Threat of criminal charges to force agreement = duress.

Economic Duress

Not valid grounds to rescind a contract.

Undue Influence

Mental coercion + unfair contract makes it unenforceable.

Statute of Frauds (Effect)

Certain contracts must be in writing to be enforceable.

Promise to Pay Decedent's Debts

Must be in writing.

Promise to Pay Debt of Another

Must be in writing unless it's a primary benefit.

Prenuptial Agreements

Must be in writing.

Contracts Not Performable Within 1 Year

Must be in writing.

Sale of Real Estate

Must be in writing.

Promissory Estoppel (Real Estate Exception)

Oral contract enforceable if buyer takes possession and pays or improves property.

Sale of Goods ($500+)

Must be in writing under UCC.

Exceptions (Sale of Goods)

Part performance or specially manufactured goods.

UCC Written Confirmation

Written confirmation can satisfy requirement.

Parol Evidence Rule

Written contract cannot be contradicted by prior oral agreements.

Assignments

Transfer of rights is generally allowed and not a breach.

Assignment Limitation

Liability cannot be assigned (except via novation).

Prohibited Assignments

Personal services, prohibited by contract, or increase burden.

Novation

Substitutes a new party and transfers liability.

Creditor Beneficiary

Third party has enforceable rights.

Donee Beneficiary

Third party receives benefit and has rights.

Incidental Beneficiary

No rights under the contract.

Objective Standard

Performance judged by a reasonable person standard.

Subjective Standard Exception

Applies to personal service or satisfaction contracts.

Concurrent Conditions

Both parties must perform at the same time.

Condition Precedent

Event must occur before duty to perform arises.

Condition Subsequent

Event ends an existing duty to perform.

Compensatory Damages

Puts injured party in position they would have been in.

Liquidated Damages

Pre-agreed amount for breach in contract.

Nominal Damages

Small sum when breach occurred but no real loss.

Punitive Damages

Generally not allowed in contract cases.

Rescission

Cancel the contract.

Restitution

Return benefits conferred.

Reformation

Modify contract to reflect true intent.

Specific Performance

Court orders actual performance.

Equitable Remedy Limitation

Not available if money damages are sufficient.

Waiver

Voluntary relinquishment of a right.

Duty to Mitigate

Injured party must minimize damages.