In my last post entitled What Makes A Contract Valid in California Anyway? Part 1 I discussed the basic requirements for contract formation including offer, acceptance and mutual assent. In this post, I will continue discussing the essential components of a valid contract in California, including, 1) consideration, 2) competency, 3) consent, 4) legality and 5) whether a contract must be in writing to be enforceable under the California statute of frauds.
Consideration
Consideration is the bargained-for exchange. It is the benefit of the bargain received by one person and the detriment imposed on another. Consideration usually takes the form of money, property or services; however, it also can be performance of an act or a promise not to do something that the person has a right to do. Consideration must be legally sufficient, but courts will not analyze the adequacy of the consideration; meaning that courts will not measure the amount of consideration or the fairness of the agreement when analyzing whether sufficient consideration exists.
Other Formation Requirements
In addition to offer, acceptance and consideration, the fundamental elements of a contract, the parties to the contract must be competent, the parties must be capable of voluntary consent, and the object of the contract must be legal.
Competence means each party has the legal capacity to make a contract. Generally, people are considered to be competent if they are over 18 years of age and of sound mind.
Consent means that each party to the contract voluntarily agrees to the terms of the contract.
The law does not allow for enforcement of contracts based on illegal activity. Therefore, a valid contract must be based on legal activity.
The Statute of Frauds Requires Certain Contracts to be in Writing
Some agreements must be in writing to be enforceable. California's Statute of Frauds provides that some contracts "are invalid, unless they, or some note or memorandum thereof, is in writing and subscribed by the party to be charged." See Cal. Civ. Code §1624.
Under California's statute of frauds, some of the more common contracts required to be in writing, subject to limited exceptions, include: 1) agreements for the sale of real estate, 2) leases of one year or more, 3) an agreement authorizing an agent to sell real estate or 4) an agreement authorizing an agent to lease real estate for a period longer than one year, and 5) an agreement to answer for the debt of another. You can reference the statute of frauds for a complete list of all contracts required to be in writing.
Under the statute of frauds certain contracts are unenforceable if not in writing; yet, some contracts are not required to be in writing and may be enforced based on an oral agreement. For many reasons, however, it is generally advisable to memorialize final agreements in writing, including to prevent faulty memories from causing disagreements about the terms of contract between the parties.
Sources
San Francisco business agreement attorney Matthew L. Kabak prepares and negotiates contracts for growing and established companies in the San Francisco Bay Area, including Oakland, San Mateo, Palo Alto and San Jose. From complex business transactions to key vendor agreements, Matthew L. Kabak of Kabak Law Group has been protecting businesses and their owners for over a decade.
