Contract Law Overview

What is a contract?

A contract is a legally enforceable agreement that meets certain specified legal requirements between two ore more parties in which each party agrees to give and receive something of legal value. It is distinguished from a gift in that each party gives and receives something of legal value.

Requirements for a Contract to Exist-

In determining whether a contractual relationship exists there must be all six of the requisite elements present in order to make a valid contract.

These include Offer, Acceptance, Consideration, Legality of the subject matter, Contractual capacity, and Contractual intent.

Offer:

An offer is a proposal by one party to another manifesting an intention to enter into a valid contract. Every valid contractual relationship starts with an offer.

Acceptance:

The party to whom the offer is made must accept the proposal to create a contract.

Consideration:

Consideration is the subject matter of the contract. It is the thing for which the parties have bargained. Consideration does not always mean the “price.” Although money may be part of the bargain, it is not always the complete bargain. The crucial aspect of consideration is that each party both gives and receives consideration (something of value).

Legality of the Subject Matter:

A contract can only be formed for a legal purpose and must fulfill any statutory regulations with respect to form.

Contractual Capacity :

The contractual capacity of a contract refers to the ability of a person to enter into a valid contract. This mostly deals with the age of the party and the person’s mental condition.

Contractual Intent:

If it can be shown that the parties did not subjectively intend to form a contractual relationship, there will be no contract. To determine intent not only the words of the contract itself but also the surrounding circumstances must be analyzed to determine whether a contract exists.

Method of Creation: Express, Implied, or Quasi-contracts

A contract is formed either by the words or conduct of the parties and is classified accordingly.

Express-

An express contract is one in which the mutual assent of the parties is manifested in words, either orally or in writing.

Implied-

An implied contract is one in which the promises of the parties are inferred from their actions or conduct as opposed to specific words being used.

Quasi-contract-

A Quasi-contract is a contract that looks like a valid contract but is not a contract because one of the requisite elements is missing. In the interests of fairness, the law has determined that a party should be entitled to some remedy if injured by such a situation.

Type of Obligation: Bilateral or Unilateral

All contracts are either bilateral or unilateral. The type of obligation of a contract refers to the kind of duty imposed on the parties to the contract.

Bilateral-

A bilateral contract is a promise for a promise. With a bilateral contract, the parties are expecting a mutual exchange of promises, with the performance to be carried out only after the promises have been given.

Unilateral-

A unilateral contract is a promise for an act. With a unilateral contract, the contract is only created when one side has performed a requested act. Instead of an exchange of mutual promises a unilateral contract is an exchange of a promise for an act.

To determine if a contract is bilateral or unilateral one must determine the intent and the specified wishes of the parties involved. Courts generally go along with what the parties could most reasonably expect under the circumstances because that would indicate the true meeting of the parties’ minds with respect to the manner of acceptance sought.

Type of Form: Formal and Informal

Formal-

A formal contract is a contract that was written and signed under seal, historically. The seal was used as the consideration for the agreement.

Informal-

An informal contract is any contract that is non-formal. Informal contracts are agreements that meet all the requirements of valid contracts.

Timing: Executory and Executed Contracts

Timing is one of the most critical questions for the parties to a contract. The timing element indicates when the parties have enforceable rights and obligations.

Executory-

An executory contract is a contract in which one or both of the parties still have obligations to perform.

Executed-

An executed contract is complete and final with respect to all of its terms and conditions.

Enforceability: Valid, Void, Voidable and Unenforceable

Valid-

A valid contract is an enforceable contract that meets all of the six requirements. There is a proper offer and acceptance, a legally valid consideration is given and received, the parties have the legal capacity to enter into a contract, the contract is for a legal purpose and the parties genuinely intend to contract. Either party can bring a lawsuit for the enforcement of a valid contract.

Void-

A void contract is a circumstance in which there is no contract and therefore the law does not entitle the parties to any legal remedy.

Voidable-

In a voidable contract a party to the agreement has the option of avoiding their legal obligation without breaching the contract, but if they wished, could affirm their obligation and thereby be contractually bound. A contract entered into by a minor is an example of a voidable contract.

Unenforceable-

An unenforceable contract is a valid contract for which the law offers no remedy if its obligations are not fulfilled.