By: Samita Pachai, Articling Student at Cobalt Lawyers, and Farrah Rahman, Knowledge Content Manager at Clausehound.com
It’s your average Saturday night in the big city. A woman meets a man at a bar. He offers to buy her a drink. She happily accepts and they exchange phone numbers. The next morning, the woman receives an unexpected text message from the man: he is asking her to e-transfer him the money he spent on her drink.
She quickly agrees and transfers the money, but takes the question to social media—should she have repaid him? The responses come flooding in, with 17% of people saying she should have paid him and 83% saying she should not have.
This is not the first time people have reported such incidents. There are numerous stories that can be found on the Internet about people requesting to be reimbursed for coffee or a drink upon being turned down for a second date.
While these are light-hearted examples of slightly eccentric dating behaviour, the stories are actually a real-world manifestation of a legal issue—namely, when is a contract valid and enforceable? The short answer to the above scenario is that no, there was no obligation to reimburse those stingy daters because there was no valid and enforceable contract between the parties. In order to understand why, we need to look at the purpose of contract law and the core elements that make a contract valid and therefore enforceable against a breaching party.
Why do we enter into contracts?
There are a number of reasons for which we voluntarily choose to enter into contracts that, in effect, act as constraints on the choices we can make. Broadly stated, we enter into contracts in order to enforce promises. More specifically, we enter into contracts to bring clarity to the terms of an agreement, to set up a framework for an agreement, and to both fulfill and protect our reasonable expectations. This is certainly not an exhaustive list of the functions of contract law, but rather is a list of some basic things to consider when entering into a contract.
What are the elements of a valid and enforceable contract?
There are six elements to a valid contract:
- There must be an intention to form a legal relationship. The question to be asked here is whether a reasonable person in the circumstances would have intended to form a legal relationship.
- There must be consideration provided by both parties. This requires that each party provide something of value.
- There must be an offer made and a corresponding acceptance of that offer.
- There must be a meeting of the minds. In making an offer and accepting the offer, the parties must be “of one mind” when it comes to understanding the agreement. The terms of the agreement (namely the parties, price, property, and particulars—also known as the “Four P’s”) must be certain.
- The contract should be evidenced in writing and executed. As the great Stevie Wonder has forever engrained in our minds, the contract should be “signed, sealed, delivered.” It is important to note that only a limited number of agreements are actually required, by law, to be drafted in writing. It is, however, prudent to do so whenever possible.
- As an overarching requirement, the parties to the contract must have capacity to enter into the contract. This means that they must not be (i) mentally impaired, (ii) intoxicated or under the influence of any substance, or (iii) a minor.
So, take our daters from the scenarios outlined above. There was no intention to form a legal relationship, consideration was provided by only one party, there was no meeting of the minds, there is no evidence of the agreement in writing, and, depending on the intoxication level of the parties, there may be questions regarding capacity. All in all, unlikely to be a valid and enforceable arrangement.
Helpful contractual clauses
In order to help ensure that your contracts are upheld as valid and enforceable, there are certain clauses that can be included in any agreement. A Validity Clause, for example, states that the parties agree that the contract is valid. A Capacity Clause states that the parties have the capacity to enter into the contract. Other standard contractual language can be included, such as an explanation of the purpose of the agreement, recital language about the consideration to be provided, and detailed clauses outlining the Four P’s.
To see examples of a variety of standard contracts, visit our Small Business Law Library!
This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. This post was originally posted by our partner, Clausehound.com, which is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Find Clausehound.com where you see this logo.