Contract Law

1. The essential components of a valid contract are; agreement, consideration, contractual capacity, and lawful object. (Cheeseman, 2006, p. 172) Each of these elements is necessary in order to defend a contract in a court of law. The definition of each in detail assists in protecting all parties to a contract and is conducive to good business.

a. Agreement: In order to have an agreement, there must be an offer made by one party that is accepted by at least one other party. The party making the offer must be willing to be obligated to the contract, have terms that are set or at least realistically outlined, and have conveyed the offer to the other party or parties. In turn, the party or parties receiving the offer must have given consent to the terms in a fashion determined by the objective theory of contracts. (Cheeseman, p. 185)

b. Consideration: The consideration in a contract refers to something of legal value being negotiated for in exchange for goods or services. Something of legal value supporting the contract means the one accepting the offer incurs a legal loss or the one making the offer experiences a legal gain. (Cheeseman, p.195)

c. Contractual capacity: This requirement to a valid contract ensures that the parties entering into the contract are fully capable of reasonably understanding all aspects of the contract. Persons who are legally insane at the time of the contract do not have the capacity to fully understand the ramifications of the contract. Persons who are in an altered state through drugs or alcohol can in most states, if the person was incapable of understanding the terms of the contract when the entered it, disaffirm it. Minors are able to enter into a contract and in some cases, due to the “infancy doctrine”, (Cheeseman, p. 206-207) later disaffirm it before they reach the age of majority while being responsible for any restitution for damages to the items contracted for.

d. Lawful object: The purpose of the contract must be legal, in accordance with public policy and in line with statutes that apply to the object in order to be considered legally binding. (Cheeseman, p.211-214)

2. The objective theory of contracts deals with the circumstances surrounding the contract as well as the behavior of the parties involved to decide whether a serious offer had been made. Using the reasonable person standard to evaluate whether a sensible person would consider it to be valid means that the intent of the offer was irrelevant, how the offer would be perceived by a rational person is deciding. This theory directly applies to this case, as it is the main reason there was a case at all. Mr. Leonard had decided to accept what he perceived to be an offer of a Harrier Jet, affectionately known to Marines as an Arizona yard dart, from PepsiCo, Inc. based upon a humorous commercial spot. The United States District Court, Southern District of New York, decided that a realistic, logical human would not have seen this commercial as a real or valid offer to acquire a Harrier jet. Instead it was viewed as a jest as no objective person would watch the commercial and see it as an offer. (Wood, 1996)

3. In order to have a valid agreement, there has to be a valid offer and the acceptance of that offer with mutual assent of the parties. In this case, the alleged offer was communicated via advertisement in a manner that would be considered by an objective person to be in jest. Advertisements on the average are not considered offers unless the language used

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