Contract law concerns creating, transferring, and disposing of property and other rights through promises. When parties enter into a contract, they establish their own terms and set limits on their own liabilities.
A contract is a legally enforceable promise. Elements are the constituent, or necessary, parts of a legal claim that a person bringing a lawsuit must prove in court to be successful. Each of the following four elements is necessary for a contract to be enforceable:
1. Agreement. An agreement consists of one party’s offer and another party’s
acceptance of that offer. The parties must express real assent, which ban be negated by fraud, duress, concealment, or mistake.
2. Capacity to contract. Capacity to contract is a legal qualification that determines one’s ability to enter into an enforceable contract. Capacity involves the ability to understand the consequences of one’s actions. The parties to a contract must be
legally competent, that is, they must have the capacity to enter into the contract. Competent is the basic or minimal ability to do something and the mental ability to understand problems and make decisions. Factors such as minority, insanity, or intoxication can restrict the parties’ legal capacity.
3. Consideration. Consideration is something of value from the promise that the promisor requested or bargained for in a contract. The price each party pays to the others, or what each party receives and gives up in the contract. For consideration to be valid, the promisor must receive a legal benefit or the promise must suffer a legal detriment.
4. Legal purpose. The contract must have a legal purpose that is consistent with sound public policy.
Types of contracts:
1. Bilateral and unilateral contract. In a bilateral contract, each party promises a
performance. Most contracts are bilateral because they involve exchanging mutual
promises of future performances. In a unilateral contract only one party makes a
promise or undertakes the requested performance.
2. Executed and executory contract. An executed contract is a contract that has been
completely performed by both parties. For example, one party has bought and paid
for clothes that another party has delivered. In contrast, an executory contract is
one that has not been completely performed by one or both of the parties. 3. Voidable and void contract. A voidable contract is a contract that one of the parties
can reject (avoid) based on some circumstance surrounding its execution. The
right of avoidance is available only to an innocent or injured party. The contract is
only voidable. It is not automatically void. A voidable contract is a valid contract
that can continue in force, and the parties can execute it completely unless one of
them chooses to avoid it. The behavior of one of the contracting parties, such as
fraud or illegal deceit, also can make a contract voidable. A void contract is an
agreement that, despite the parties’ intentions, never reaches contract status and is
therefore not legally enforceable or binding.
First element of an enforceable contract: agreement
The parties to a contract must mutually assent, or agree, to the same terms. An agreement requires the following two steps: (1) the presentation of an offer (2) an acceptance of that offer.
An offer is a promise that requires some action by the intended recipient to make an agreement. The person who makes the initial offer is the offeror, and the person to whom the offer is made is the offeree. The following are the three requirements of a valid offer for contract purposes:
Intent to contract. 1.
The offeror must intend, or appear to intend, to create a legal obligation (contract) if the offeree accepts the offer. A key question in each case involving contractual intent is whether, by words or conduct, a party has shown an intent to be immediately bound. The test of whether the intent has been shown is based on how a reasonable person would interpret the intent, not the party’s actual intent.
Some communications are intended to induce others to respond with offers. These communications are not in themselves offers because they express no present intent to contract. Most advertisements, catalog, and sales letters meet this description. They are invitations to negotiate or to make an offer.
A party that asks for offers is free to accept them or reject them. In construction, for example, a project owner asking for bids can elect to accept one bid or to reject all of them. Any bidder can withdraw the bid at any time before its acceptance. 2. Definite Terms
Definite terms make an agreement enforceable and make it possible to determine whether the parties have fulfilled their promises and to calculate damages. An offer’s terms must be stated with at least a reasonable degree of certainty. Reasonable certainty means generally identifying the contracting parties, the contract’s subject matter, the price, and the time of performance. The absence of one or more of these terms, however, is not necessarily fatal to the offer. To determine reasonable certainty, courts may ask whether the offer’s terms are clear
enough to provide a basis for a remedy if default occurs.
Law also determines certainty.
3. Communication to offeree.
An offeree cannot accept a proposal before knowing about it. However, an offer can be valid if the offeree has begun performance before learning of the offer. Duration and termination
Duration and termination are key to determining whether an offer is binding. Factors considered include the following: lapse of time; operation of law; offeree’s rejection;
counteroffers; and offeror’s revocation.
An acceptance occurs when an offeree agrees to a proposal or does what the offeror proposed.
1. The acceptance must be made by the offeree.
An offer can be made to one person, to a group or class of people, or to the public. The offer’s language and circumstances determine the identity of the offerees. When an offer is made to a particular group, any member of the group can accept it. An acceptance expresses the offeree’s consent to the offer’s terms as binding. Use of the
term “accept” is not necessary to bind the offeree; any language showing that the offeree agrees to the proposal suffices as long as it meets all three requirements for a binding acceptance.
2. The acceptance must be unconditional and unequivocal.
If the acceptance deviates from the offer’s terms, it becomes a counteroffer. An
offeree must comply strictly with provisions in an offer relating to time, place, or manner of acceptance.
Acceptance sometimes contain wording that appears to be conditional but that is not. Whether such an acceptance is unconditional depends on the extent of the details. If the details are routine clerical matters, an unconditional acceptance results. If the details involve substantial matters, such as determining the boundaries of a piece of land, the acceptance is conditional, and therefore, not valid.
In addition to being unconditional, an acceptance must be unequivocal. An equivocal response is not an acceptance, a counteroffer, or an outright rejection. 3. The offeree must communicate the acceptance to the offeror by appropriate word
If an offer specifies certain means of acceptance, the acceptance must comply to form a contract. If no means of acceptance are specified, customary means of acceptance in similar transactions or those reasonable under the circumstances are permissible. Second element of an enforceable contract: capacity to contract:
2. Insane persons
3. Intoxicated persons (under the influence of alcohol or drugs)
4. Artificial entities (such as insurers) that are restricted by law or corporate charter
from entering into certain contracts.