Question

Scenario 5: Contracts

Christina Scott was responsible for leases and purchases of property for Bayview. Bayview was interested in building a coffee shop on a tract of land close to Clemson University in South Carolina. Scott met with Moe Smith about purchasing the land. Scott judged Smith to be about 85 years old. During the meeting, Scott noticed several brochures about assisted living facilities, as well as several prescription bottles. After discussing the good old days for several hours, Scott and Smith agreed on the sale of the land for $45,000. Since Scott brought a copy of a contract with her, she helped Smith complete the paperwork and both parties signed. Unbeknownst to either party, the purchase price was written as $5,000. Three days before the closing, Scott called Smith to remind him of the location of their meeting to sign the remaining documents. Confused, Smith said he didn't know anything about selling that land and he had no intention of selling his land to some dumb blonde who tried to cheat him.

• What are the basic requirements for contract formation?
• What defects in the contract formation process may have occurred?
• Does Scott, on behalf of Bayview, have a valid contract with Smith?

Answer 1

The basic requirements for contract formation are-

Offer and acceptance- Offer is the promise in exchange of performance by another party and acceptance when another party accept the offer.

Consideration- Consideration means something of value. In contracts this is basically money price.

Competency- Competency means party in entering a contract must be capable to competent to understand terms and conditions of contract and legally age to enter the contract. Minors, mental patient and people under influence of illegal substances are not competent.

Lawful object- This means that contract formed should not be for illegal act or performance.

The defects in the contract formation process may have occurred is Mistake. A mistake is an erroneous belief ie innocent in nature held by one or both parties to a contract at the time of its formation. A mistake in contract formation can happen in cases like- subject matter or terms of the contract , identity of the other party, nature of the transaction etc.

In this case, There was mistake in contract formation in the area of consideration where purchase price was written as $5,000 instead of $45000.

No Scott on behalf of Bayview have no valid contract with Smith due to bilateral mistake. This happened when both did not know about that contract form had wrong price for sale of land. When bilateral mistake happens then contract is void in nature.