Contract An agreement between two or more persons (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value. Contracts generally can be written, using formal or informal terms, or entirely verbal. If one side fails to live up to his/her/its part of the bargain, there's a "breach" and certain remedies for solving the differences are available. The terms of the contract - the who, what, where, when, and how of the agreement - define the binding promises of each party to the contract. Required Elements of a Valid Contract Mutual Assent (Meeting of the Minds) - This means that each side must be clear as to the essential details, rights, and obligations of the contract. Putting the deal down on paper prior to signing it goes A LONG way to avoid future misunderstandings and disputes. Meeting of the minds sometimes can be expressed by words spoken or gestures made or can be inferred from the surrounding circumstances. There is no meeting of the minds if: (1) one side is obviously joking or bragging, (2) there is no actual agreement (i.e., the farmer who is selling a gelding and the buyer thinks the horse is a brood mare), or (3) both sides have made a material mistake as to the terms or details of the contract. Consideration - If the other side is to be held to the contract, you must give up something in exchange. This is called consideration. No side can have a free way out or the ability to obtain something of value without providing something in exchange. Money is the most common form of compensation, but it can also be property, giving up a right or valid claim, making a promise to do or not to do something, or anything of value. Agreeing to perform an illegal or illicit act is not consideration and the contract is void. Capacity (Competent Parties) - For a contract to be valid, each side must have the capacity to enter into it. Most people and companies have sufficient legal competency. A drugged or mentally-impaired person has impaired capacity and chances are a court may not hold that person to the contract. Minors (e.g., usually those under eighteen) cannot, generally, enter into a binding contract without parental consent, unless it is for the necessities of life, such as food, clothing, or for student loan contracts. Legality – Any agreement involving an illegal or illicit product or act is not a valid contract. Contracts that must be in writing Sale of Real Estate o Must be signed by the seller Sale of goods above $500 Promises to pay another person’s debts Contracts that cannot be completed within one year REMEDIES AVAILABLE IN THE BREACH OF A CONTRACT 1 Compensatory Damages Compensates for the party’s loss 2 Consequential and Incidental damages Damages that both sides knew about in case of breach 3 Attorney Fees 4 Liquidated Damages Payable in case of fraud 5 Specific performance Court mandates actions to be taken 6 Punitive Damages Punishment for egregious actions Used as a deterrent (e.g., Big Tobacco; Erin Brokovich) 7 Rescission Contract is cancelled and anything exchanged is returned 8 Reformation Rework the terms of the contract to reflect the actual intent of both parties Mailbox Rule Review the entire handout and notes, but the general rule is: Acceptance on answer; revocation or rejection on receipt.
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