I. CONTRACT FORMATION
A contract is a legally enforceable agreement between two or more parties. It involves the exchange of promises, where one party offers to do something in exchange for the other party’s agreement to do or not do something.
Key elements of a valid contract:
1. Offer: A promise by one party, called the offeror, to act or refrain from acting in a certain way.
2. Acceptance: Unconditional assent by the other party, the offeree, to the terms of the offer.
3. Consideration: Something of value exchanged between the parties.
4. Capacity: The parties’ ability to fully understand the contract.
5. Legality: The contract’s subject matter must be legal.
Case: Lucy v. Zehmer (1954): Defendants claimed their agreement to sell land was a joke and they did not intend to form a contract. Ruled that if a reasonable person would perceive the agreement as serious, it constitutes a valid contract. (Issue, Rule, Application, Conclusion – IRAC)
II. OFFER
An offer is a manifestation of intent to contract, defined by definite terms. It must be communicated to the offeree.
Case: Lefkowitz v. Great Minneapolis Surplus Store (1957): Defendant advertised a sale of fur coats ‘first come, first served’. Plaintiff, being the first, was rejected because offer was intended for women. It was ruled that the advertisement was a valid offer as it was clear, definite, and explicit, leaving nothing open for negotiation.
III. ACCEPTANCE
Acceptance is an unequivocal indication of assent to the terms of an offer.
Case: Leonard v. PepsiCo (1999): Plaintiff claimed an advertisement by PepsiCo constituted a valid offer to deliver a fighter jet in exchange for Pepsi Points. Court ruled it could not be a valid acceptance as no reasonable person would perceive the ad as a serious offer.
IV. CONSIDERATION
Consideration is the price paid for the promise of the other party. It’s the inducement to enter into a promise or agreement.
Case: Hamer v. Sidway (1891): Uncle promised nephew $5,000 if he refrained from drinking, swearing, and gambling until he turned 21. Court ruled that nephew’s forbearance was valid consideration for the promise.
V. CAPACITY AND LEGALITY
Parties must have capacity to enter a contract and the contract must not be for an illegal purpose.
Case: Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co. (1983): Court ruled a party who has the capacity to understand a contract can’t escape their obligations under that contract.
VI. DEFENSES TO ENFORCEABILITY
A contract may not be enforceable due to lack of genuineness of assent (duress, undue influence, mistake), unconscionability, misrepresentation, or Statute of Frauds.
Case: Williams v. Walker-Thomas Furniture Co (1965): Court found a contract unconscionable due to gross inequality of bargaining power.
VII. BREACH OF CONTRACT AND REMEDIES
Breach occurs when a party fails to fulfill their obligations under the contract. Remedies include damages, specific performance, or cancellation and restitution.
Case: Hadley v Baxendale (1854): Plaintiff sought damages for lost profits due to late delivery of a broken millshaft. Court ruled consequential damages are only recoverable if they were reasonably foreseeable at the time of contract formation.
VIII. THIRD PARTY RIGHTS
Third party beneficiary rights or assignment and delegation of rights and duties.
Case: Lawrence v. Fox (1859): Plaintiff was a third-party beneficiary of a promise between two others. Court ruled that a third-party beneficiary can sue to enforce obligations under the contract.
This guide covers the basic law of contracts and some landmark cases. It is not exhaustive and does not include every possible rule, exception, or nuance. Always refer to your class notes, textbooks, and legal research.