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Ch. 5: Elements of a Contract
Section 5.1 Capacity and Legality
Parties to a contract must have the capacity to enter into the contract.
Persons who may lack contractual capacity include:
minors
A minor is a person who has not reached the legal age of adulthood.
In most states, the legal age is 18.
Minors can be held to contracts that involve:
car insurance
rental agreements
enlistment in the military
Some states also give limited capacity to married minors and minors who own businesses.
persons with mental impairments
intoxicated persons
convicts
An otherwise valid contract may be illegal if it involves an agreement that:
violates statutory law
An agreement violates statutory law if it:
requires a party to commit a tort or a crime
violates gambling laws
involves an unlicensed person doing a job that requires a license
is contrary to public policy
An agreement is contrary to public policy if it harms the public, or the good of society.
Agreements that run counter to public policy include agreements to:
eliminate competition among businesses
obstruct justice
induce a breach of duty or fraud
The Statute of Frauds requires that some contracts be in writing.
This is so there is evidence that the contract exists and has specific terms.
Contracts that must be in writing include:
contracts to pay someone else' debts
sales contracts
contracts for real estate such as land
Section 5.2 Consideration
Consideration in a contract is the exchange of benefits and detriments.
A benefit is something a party receives.
A detriment is something a party gives up.
Consideration in a contract requires three things:
it must involve a bargained-for exchange
A bargained-for exchange is when one promise is made in exchange for another promise.
it must involve something of value
The thing of value exchanged as consideration in a contract can be:
Money
Property
a Service
it must be legal
The law has no specific value requirements on consideration.
All that matters is that the parties agreed freely on the value and the price.
Sometimes the parties to a contract disagree over the amount of consideration owed.
The amount is said to be in dispute.
The dispute can be settled through accord and satisfaction.
This occurs when one party agrees to accept less than full payment to end the contract.
Ch. 5: Contract Law - Elements of a Contract
Ch_5.pdf