CONCEPT REVIEW:   Before beginning the interactive,  review LO1 on page 174. Recall that a legally binding contract requires  four elements: offer, acceptance, capacity, and legal object.       Case:   Read the case below and discuss the question .

Mr. Barnard is a landlord who has a house to rent. A college student,  Julie, saw the sign in the front yard and is interested in renting the  house. Mr. Barnard tells her the house is for rent for a total of 12  months, and that rent will be $899 in cash each month plus utilities.  After touring a couple of houses in the neighborhood, Julie decides to  rent Mr. Barnard’s house and comply with his terms.

Discuss the elements of the contract and identify the issue and applicable rule of law.

The Definition of a Contract


LO 9-1

This part of the text focuses on contracts. A contract,  according to the Restatement (Second) of Contracts, is “a promise or  set of promises for the breach of which the law gives a remedy or the  performance of which the law in some way recognizes a duty.”1 Another, perhaps simpler, way to think of a contract is that it is a set of legally enforceable promises.


A contract has four elements: the agreement, the consideration, contractual capacity, and a legal object. The agreement consists of an offer by one party, called the offeror, to enter into a contract, and an acceptance of the terms of the offer by the other party, called the offeree. The agreement is discussed in more detail in the latter part of this chapter.

The second element of a contract is the consideration,  which is defined as the bargained-for exchange. Another way to think of  the consideration is that it is what each party gets in exchange for  his or her promise under the contract. Consideration is further  discussed in Chapter 10.

The third element is contractual capacity,  the legal ability to enter into a binding agreement. Most adults over  the age of majority have the legal ability to enter into binding  contracts, but Chapter 10  explains when people have either limited or no capacity to enter into  these agreements. Persons who do not have the capacity to enter into  legally binding contracts include those who are under the age of  majority, intoxicated, or suffering from mental illness. Chapter 10 also discusses the fourth element of a binding, legal contract, legal object. The contract cannot be either illegal or against public policy.

The elements of a contract, as well as defenses to its enforcement, are listed in Exhibit 9-1.

Exhibit 9-1 A Valid Contract Has Four Elements, and No Defenses Can Be Raised against It




Lack of genuine assent


Lack of proper form

Legal purpose



Sometimes  the parties may enter into what appears to be a legally binding and  enforceable contract because all four elements of a contract are  present, but one of the parties may have a defense to the contract’s  enforcement. Such defenses fall into two categories. The first,  discussed in Chapter 12, is a lack of genuine assent.  A contract is supposed to be entered into freely by both parties, but  sometimes the offeror secures the acceptance of the agreement through  improper means, such as fraud, duress, undue influence, or  misrepresentation. In these situations, there really is no genuine  assent to the contract, and the offeree may be able to raise the lack of  genuine assent as a defense to enforcement of the agreement.

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