Unit 1: Elements of a Valid Contract

Robert and Sarah enter into a contract for Sarah to purchase Robert's home. Robert decides he doesn't want to sell, and is elated when he finds out that Sarah's only 17 years old. Can Sarah force Robert to sell?

Yes, Sarah can require that Robert fulfill the contract terms.

executory contract

A contract in progress; one or more terms of the contract remain undone.

Executed contract

A contract in which all the parties have met all terms of the contract.

Unilateral Contract

A contract in which consideration (such as a promise) is only given by one party to the other.

invalid contract

A contract in which one or more of the essential elements is missing.

Voidable contract

A contract may be cancelled for one of a number of reasons

Valid contract

A contract that includes all necessary elements and is signed by all parties

Implied Contract

A contract that is based on the actions or behaviors of the parties, not on words.

Unenforceable Contract

A contract that will not hold up in court.

enforceable contract

A contract that will stand up in court.

Void contract

A contract to do something that is illegal or is a legal impossibility

Bilateral Contract

A mutual contract that involves an exchange of promises or other consideration between two parties.

Now let's take a closer look at each of the essential elements, beginning with legally competent parties. What is a legally competent party?

A party who has the legal and mental capacity to enter into a contract

Express Contract

A stated (written or oral) agreement between two parties to specific terms

Liquidated damages

Allows the aggrieved party to collect reasonable damages, even if damages are hard to calculate.

All of the following are true regarding implied agreements EXCEPT which one?

An implied agreement is based on a formal agreement.

In the eyes of the law, why do people under age 18 lack contractual ability?

Because they're minors.

What does legal purpose mean?

Contracts must be written for a lawful objective.

Notices

Describes how contract-related notice may be made and when notice is considered to have been received

Choice of law

Describes the law under which the contract will be interpreted

Dwight tells his buyer Jamie that a nearby stream could possibly flood the basement, though it's never happened to him. After signing the contract, Jamie's home inspector shows proof that the basement flooded last year, when Dwight was still living in the home. What's true about this situation?

Dwight has committed fraud, which has invalidated Jamie's consent.

Real estate sales contracts must be valid, express, bilateral, ______, and executed or executory.

Enforceable

Which of these is an example of good consideration?

Gifting a house to a family member

UETA (Uniform Electronic Transactions Act)

Gives electronic records and signatures the same legal weight as paper versions.

Which clause in a contract states that one or more parties won't be held liable if there are losses or expenses related to the contract?

Indemnification clause

Arbitration

Indicates that legal disputes are to be solved through arbitration

Jolene signs a contract to buy Harvey's home. Before closing, it's discovered that Jolene is only 16 years old. Because she's a minor, she's not considered legally competent to enter into a contract. Which of the parties can void the contract?

Jolene- If a party doesn't have legal capacity and enters into a contract anyway, the contract is voidable by the party lacking legal capacity.

Five elements are required for a valid contract:

Legally competent parties Offer and acceptance Consent Legal purpose Consideration

A legally competent party means that an individual has the capacity, legally and ______, to enter into a contract.

Mentally

In a purchase offer, is earnest money required to have a binding contract?

No, because the buyer's consideration is the promise to buy.

Indemnification

Releases one or more parties from liability or loss.

The UETA makes it legal and binding for contracts to be ______.

Signed electronically

What's consideration with regard to a contract?

Something of value is given in exchange for something of value.

Time of performance

Specifies the date by which performance of the contract needs to be completed.

Severability

States that portions of the contract are enforceable even if one part is not

Statute of limitations

States the time frame in which a party can file a lawsuit relative to the contract.

In a real estate transaction, which three of the following are examples of consideration?

The seller's promise to sell the property to the buyer The seller's commitment to transfer the property to the new owner The property itself

You'll get a haircut that costs $50.

This is a bilateral agreement. Your stylist will cut your hair, and you'll pay $50 for the service.

You promise to pay a $100 reward if someone returns your phone.

This is a unilateral agreement. Only one person has an obligation here: You'll pay the reward. There's no other specific party, because you don't know who will return the phone.

You're talking to a co-worker at lunch and she mentions she has a box of baby clothes her kids have outgrown that she needs to get rid of. You have a baby on the way, so you offer to pay her $25, and she agrees to bring the box to work the next day and give it to you. Which of the following is true in this situation?

This is an express contract because you defined in words the specific terms of the agreement and consideration to be exchanged.

Which of these statements describes the essential element of offer and acceptance? There are two correct answers.

Two parties enter into an agreement with full understanding of contract terms. A real estate broker offers to represent a client in a sales transaction. They discuss the terms of the agreement and the client accepts.

You receive an offer in the mail that says you're eligible to win a cash prize if you place some stickers on a form and return it to the sender. What type of contract is this?

Unilateral contract

A contract for an illegal purpose is ______.

Void

Rex needs to handle some money he acquired during an "unsavory" business deal. He agrees to sign his boat over to his colleague, Ben, if Ben can launder the money and return it to Rex as part of a legal business dealing. What kind of contract do Rex and Ben have?

Void- A contract for an illegal purpose is void!

What's the best definition of legal purpose?

Written for a lawful objective

Offer

a promise made by one party, requesting something in exchange for that promise

Acceptance

a promise to be bound by the exact terms made in the offer

Undue influence

exists when an act of persuasion overcomes another individual's free will and judgment

Duress

includes the use or threat of force, such as blackmail or bodily harm

You sign a contract to purchase a machine that will allow you to travel back in time and meet Abraham Lincoln. Assuming that time machines don't actually exist (for now), what type of contract is this?

Void-A party can't promise to do something that's actually impossible in a contract. This contract is void because the seller of the machine literally can't perform his side of it.