Comprehensive Contract Law: Definitions, Elements, and Types

What is a contract

A legally enforceable agreement between two or more parties

Purpose of contract law

To ensure promises are kept and provide remedies when they are not

Key characteristics of a contract

Voluntary agreement, creates obligations, enforceable by law, requires specific elements

Four elements of a valid contract

Agreement, consideration, contractual capacity, legality

Agreement

Offer and acceptance; mutual assent or meeting of the minds

Consideration

Something of value given in return for performing a contract obligation

Contractual capacity

Legal ability to enter a contract

Legality

Contract must have a lawful purpose

Bilateral contract

Promise for a promise; formed when promises are exchanged

Unilateral contract

Promise for an act; formed when the act is completed

Express contract

Terms stated in words written or spoken

Implied in fact contract

Formed by conduct of the parties

Quasi contract implied in law

Court imposed obligation to prevent unjust enrichment

Valid contract

Contains all required elements and is enforceable

Void contract

No legal effect for example illegal subject matter

Voidable contract

One party may cancel the contract

Unenforceable contract

Valid contract but cannot be enforced due to a defense

Lack of genuine assent

Contract defense involving fraud, duress, undue influence, or mistake

Statute of Frauds

Requires certain contracts to be in writing to be enforceable

Contracts requiring writing under Statute of Frauds

Real estate, contracts over one year, collateral promises, marriage consideration, sale of goods 500 dollars or more

Requirements for a valid offer

Objective intent, definite and certain terms, communication to offeree

Objective intent

Would a reasonable person believe the offeror intended to be bound

Definite and certain terms

Clear material terms including parties, subject matter, price, quantity, time of performance

Communication of offer

Offeree must know about the offer to accept it

Advertisements

Generally not offers; invitations to negotiate

Price quotes

Not offers; invitations to negotiate

Preliminary negotiations

Not offers; parties are still bargaining

Statements of future intent

Not offers; no present commitment

Auctions with reserve

Not offers; seller may withdraw goods

Termination of offer

Revocation, rejection, counteroffer, lapse of time, operation of law

Revocation

Offeror withdraws the offer; effective when received

Rejection

Offeree rejects the offer; effective when received

Counteroffer

Rejection plus new offer; effective when received

Lapse of time

Offer expires after stated or reasonable time

Operation of law

Termination due to death, incapacity, destruction, or illegality

Acceptance requirements

Intent to accept, mirror image rule, communication to offeror

Mirror image rule

Acceptance must match the offer exactly or it is a counteroffer

Silence as acceptance

Not acceptance unless benefits accepted, prior dealings, or agreed upon

Methods of acceptance

Must follow specified method or any reasonable method if none specified

Mailbox rule

Acceptance is effective when properly dispatched; revocation and rejection effective when received

Instantaneous communication exception

Mailbox rule does not apply to phone, text, or in person communication

Option contract

Offeree gives consideration to keep offer open; offeror cannot revoke during option period

Unilateral contract irrevocability

Once performance begins, offer cannot be revoked and must allow reasonable time to complete

Definition of consideration

Something of value exchanged between parties

Bargained for exchange

Parties must exchange value; gifts are not consideration

Adequacy of consideration

Courts do not evaluate fairness of the bargain

Illusory promise

Not a real promise; no consideration exists

Past consideration

Not valid; something given before the promise was made

Preexisting duty

Doing what you are already legally obligated to do is not consideration

Exceptions to preexisting duty

Unforeseen circumstances, additional work, or UCC contract modifications

Accord and satisfaction

Agreement to settle a disputed debt for less than claimed

Unliquidated debt

Amount is disputed

Liquidated debt

Amount is certain and undisputed

Promissory estoppel

Enforces a promise without consideration when reliance occurs

Elements of promissory estoppel

Clear promise, expected reliance, actual reliance, substantial detriment, enforcement necessary to avoid injustice

Contractual capacity definition

Ability to understand rights and obligations under a contract

Groups lacking capacity

Minors, mentally incompetent persons, intoxicated persons

Minors contracts

Generally voidable at the option of the minor

Disaffirmance

Minor cancels entire contract and returns consideration as is

Exceptions to minors disaffirmance

Necessaries, insurance, student loans, marriage, military

Misrepresentation of age

Minor may still disaffirm in most states but some states prevent it

Mental incapacity categories

Adjudicated incompetent contracts void, no adjudication but lacks understanding voidable, understands contract valid

Intoxication

Contract voidable if the other party knew the person could not understand the transaction

Legality requirement

Contracts must have lawful purpose

Illegal contracts

Contracts involving crimes, torts, usury, illegal gambling, or unlicensed professionals

Public policy violations

Unreasonable noncompete agreements, unconscionable contracts, exculpatory clauses

Legal assent

Genuine agreement required or contract is voidable

Unilateral mistake

Not grounds for rescission unless other party knew, clerical error, or unconscionable result

Mutual mistake

Both parties mistaken about basic assumption with material effect; contract voidable

Innocent misrepresentation

False statement believed true; remedy is rescission only

Negligent misrepresentation

Should have known truth; treated like fraud

Fraudulent misrepresentation

False material fact, intent to deceive, justifiable reliance, injury

Undue influence

Unfair persuasion by dominant party; contract voidable

Duress

Agreement obtained through wrongful threat; contract voidable