Contract
Contract, a binding agreement between two or more persons, or parties, to do or refrain from doing a particular thing. A contract may be a written or an oral agreement. When a man and woman become engaged, they form a contract to marry. When a person rents some property he forms a contract with the landlord, either in the form of a lease or an oral agreement, to pay a certain amount of rent.
Almost every business transaction involves a contract. The study of contract law is an essential part of every lawyer's training.
Making A ContractAn exchange of promises between two parties is the usual basis for a contract. The law recognizes two stages in the formation of contracts—the offer and the acceptance. A tailor may offer to make a suit of clothes for a customer for $500. By placing his order, the customer accepts this offer and a contract is formed under which the tailor is obligated to make the suit and the customer to pay $500. During the bargaining period, an offer may be changed or withdrawn as long as the other party has not accepted it. Once the offer has been accepted, however, the contract—if it meets legal requirements —is binding and neither party can alter its terms, except by further agreement. A contract based on this exchange of promises is described as bilateral.
A unilateral contract is formed when one party promises to do or pay something if the other party performs a requested act. In a contract involving a promise to pay $500 for a suit if the person can deliver it the following week, the acceptance is brought about not by a promise to deliver the suit but by the act of delivery itself.
Legal RequirementsThe law of contracts in the United States varies from state to state, but in general a contract must meet the following requirements:
- The parties must be competent, A valid agreement cannot be made by any person whose free will is impaired by intoxication or mental deficiency. Contracts made by persons under 18 or 21 years of age (depending on the state) usually cannot be enforced against them.
- Both parties must fully understand what is being agreed to. No one can be deceived about the nature of the agreement by fraud or misrepresentation. Neither party can be forced into a contract.
- Whatever the parties agree to do must be lawful. A contract to commit a crime is invalid.
- Each party must receive something of value, or at least some nominal benefit, from the agreement. This is called the consideration.
Almost all states have adopted legislation known as the Statute of Frauds. These statutes are intended to prevent unnecessary lawsuits arising from misunderstandings of oral contracts. They provide that certain kinds of oral contracts can be enforced in court only if supported by some written evidence showing the nature of the bargain and signed or initialed by the party being sued. This evidence may be in the form of letters, sales slips, shipping tickets, or memoranda, but in some cases the entire contract must be in writing. The following kinds of contracts must meet these requirements.
- Promises to pay the debt of another person.
- Contracts concerning the rental or sale of real estate, except short-term leases.
- Promises requiring more than one year to fulfill.
- Contracts for the sale of goods over a certain value (the amount varies in different states from $30 to $200) unless a pan of the price is paid or part of the goods delivered.
If either party to a valid and enforceable contract fails to keep the promise, that party may be sued in a court of law. The injured party may demand payment of damages according to the extent of the injury. Sometimes money will not correct the harm done by failure to live up to a contract. In such a case a court may issue an injunction ordering the parties to carry out their agreement. An injured party may also sue for recision (cancellation) of a contract. This means both parties must return any money or other property that they received under the contract before the violation took place.