• Video

What Makes a Contract Enforceable?

Professor Todd Zywicki outlines the basic factors that make a contract enforceable. All parties must show that they intended to be legally bound by the contract, according to the assumptions of an ordinary reasonable person. Professor Zywicki then summarizes the two factors required for a legal contract - “consideration” and “offer and acceptance.” https://youtube.com/watch?v=_bjcnvJouBg


The touchstone for whether or not something is a contract, is whether the parties manifest an intent to be legally bound. Now, every word of that sentence is important. Why do we say manifest? Because it turns out the way the common law is developed, it doesn't matter what your subjective intent was as to whether or not you intended to enter into a contract. What matters is whether a reasonable person, a third party would think that you manifested or exhibited an intent to be legally bound to a contract. And so sometimes you have people who think that they haven't entered a contract, but they found out they are. You can't say “I promise,” and then put your fingers behind your back and say that your fingers are crossed and I didn't really mean it. What matters is you will be held to a contract if you manifest an intent to be legally bound. And you will not have an enforceable contract, even if you believe you had one, but a reasonable person would not think that an intention had been manifested to be legally bound. How do we determine then what is a legal contract? Traditionally, there are two variables that we look at to determine whether you've manifested an intent to be legally bound from the perspective of a reasonable person. The first idea is something called a “consideration,” which is a funny word, but basically a consideration is do the parties induce each other to enter into a legally binding contract. And so what we expect is that I will provide some sort of value to you, roughly put, and you will provide some sort of value to me. Now that value could be goods or that value could be reciprocal promises. You promise to come paint my house six months from now. I promise to pay you after you do that. And so it's an exchange of promises that are of value and that you think that that's what the parties are doing. The second idea after a consideration is something called “offer and acceptance.” And this is basically the idea that the contract specifies what each of the parties obligations are going to be and that they agree to those obligations. So it specifies exactly what the value is that each party is going to give to each other in a sufficient detail to believe that what? That the parties have manifested an intent to be bound. And so that's the way we channel a contract. As you move out from the core, easy cases, you start to get to other ideas, like a concept called promissory estoppel, where parties might reasonably detrimentally rely on somebody's promise, but you don't really have a consideration and an offer and acceptance. And that's where you start getting some of the edge cases as to whether or not those are enforceable contracts or not.

Related Content