form of contracts.
Use of the contract in business affairs ensures, to some extent, the performance
of an agreement, for a party that breaks a contract may be sued in court for the
damages caused by the breach. Sometimes, however, a party that breaks a contract
may be persuaded to make an out-of-court settlement, thus saving the expense of
A contract arises when an offer to make a contract is accepted. An offer
contains a promise (for example, “I will pay $1,000″) and a request for
something in return (a person’s car). The acceptance consists of an assent by
the party to whom the offer is made, showing that the person agrees to the terms
offered. The offer may be terminated in a number of ways. For example, the party
making the offer may cancel it (a revocation), or the party to whom the offer is
made may reject it. When the party to whom the offer is made responds with a
different offer, called a counteroffer, the original offer is terminated. Then
the counteroffer may be accepted by the party making the original offer.
REQUIREMENTS OF A VALID CONTRACT
For a contract to be valid, both parties must give their assent. They must act
in such a way that the other people involved believe their intention is to make
a contract. Thus a person who is clearly not sincere in saying that he or she
accepts an offer usually is not held to a contract by the courts. On the other
hand, a person who secretly has no intention of making a contract but who acts
in a manner that leads people to believe he or she had, may be held to a
contract. Legally, it is the external appearance that determines whether one is
held to a contract.
A contract results from a bargain. This implies that each party to the contract
gives up something, or promises to, in exchange for something given up or
promised by the other party. This is called consideration. In the example given
above, the consideration on one side is the promise to pay $1,000, and on the
other, the promise to deliver a car. With rare exceptions, a promise by one
party, without some form of consideration being extended by the other party,
does not result in a contract or other enforceable obligation, regardless of the
sincerity of the promise. Although each party must extend consideration to the
other in order to form a contract, the value of the consideration need not be
equal. Determining how good a bargain is becomes the responsibility of the
parties involved. Otherwise, the courts would be in the impossible position of
having to appraise the relative value of millions of promises made every year.
For a contract to be enforceable it must be between competent parties. A
contract with a person who has been adjudicated insane is likely to be declared
is now a person under 18–may be enforced or voided by the minor, unless the
contract is for necessities such as food, lodging, or medical services, in which
case he or she may be held responsible for the reasonable value of what was
or liquor, or insane persons not adjudicated insane, usually may void a contract
if the other party knows or should have known of the disability and if the
consideration received is returnable.
The last requirement of a valid contract is that its provisions be legal. If a
purported contract requires an illegal act, the result is a void contract.
Parties to an illegal contract have no standing in court. If one party receives
money or property under an illegal contract, the other may not sue to recover
what was paid under the contract. Not only are contracts requiring criminal acts
such as misrepresentation or trespass) or those in breach of public policy.
Although public policy is difficult to define, it includes some serious breaches
of conventional morality or ethics.
It is commonly assumed that an enforceable contract must be in writing. This is
usually untrue. Most oral contracts are enforceable, but written contracts are
easier to prove.
Some types of contracts must be in writing, for example, contracts for the
purchase or sale of any interest in real property, contracts to pay debts of
others, and contracts that require more than a year to perform. Contracts for
the sale of personal property–that is, movable property–as distinguished from
land, at a price above a specified sum set by law must be in writing unless
payment or delivery has been made or unless the goods were specially
Although only a few types of contract must be in writing, the terms of a written
contract ordinarily may not be contradicted in court by oral testimony.
REMEDIES FOR BREACH OF CONTRACT
In the event of a breach of contract, the injured party usually sues for money
from the breach). Damages are measured by what may reasonably be foreseen as
financial losses; unforeseeable losses may not be collected. If an award of
unique, the party who breaks a contract may be ordered by the court to perform
as agreed. This is called specific performance. For example, real estate is
always considered unique. Therefore, when a party has contracted to sell real
order that the deed for the real estate be delivered to the agreed buyer.
Most contracts are formed with an implicit understanding that neither party need
perform unless the other has completed his or her promised performance. An
exception to this understanding occurs when a party has performed most of his or
her obligation and the part not performed is relatively immaterial. The doctrine
of substantial performance provides that in such a case, the opposite party must
perform, although he or she may secure money damages to the extent that he or
she was damaged by lack of complete performance.