A contract is an agreement between two private parties that creates mutual legal obligations for the parties to the contract. Contracts can be in an oral form or a written form.
However, it is important to note that an oral contract is more challenging to enforce and should be avoided when possible. Some contracts have to be in writing to be valid, for example, contracts that involve a significant amount of money, over $500.
Because contracts are part of everyday dealings in most individuals’ lives, an individual needs to understand the rules governing contracts to ensure their contract is valid. There are certain elements every contract must include to be enforced, including:
- An offer: A will pay B $1,000 for 1,000 cupcakes;
- An acceptance of the offer presented: B accepts A’s offer of $1,000 for 1,000 cupcakes;
- A promise to perform: B says they will perform;
- A valuable consideration: The $1,000 paid for the cupcakes;
- A time or an event when the performance must be made: 1,000 cupcakes exactly 2 weeks from now;
- Terms and conditions for the performance: The cupcakes must be chocolate and have vanilla frosting; and
- Performance: The 1,000 cupcakes are delivered, and B is paid $1,000.
What Are the Required Elements for a Contract?
As noted above, certain elements are required for any contract. All contracts must have a legal purpose and cannot be entered into for illegal purposes.
For example, contracting to commit a crime, such as hiring a hitman, is illegal. With a contract, there must be a mutual agreement made between the parties.
This mutual agreement may be referred to as the meeting of the minds. One of the parties must have made an offer to another party for acceptance.
For example, signing a contract demonstrates a mutual agreement among the parties, and all involved are on the same page. Some offers may not have an expiration period.
If that is the case, the offer remains open for a reasonable time. An offer can be revoked until acceptance occurs.
Acceptance typically means agreeing to the terms of the offer. If there are any changes to the terms of the acceptance, it would be considered a counteroffer.
Consideration must be present for the contract to be valid. Consideration is when a party to the contract agrees to provide something of value in exchange for a benefit.
Consideration may be almost anything of value, for example:
- A vehicle;
- Money; or
- Manual labor.
It is important to note that there is a legal difference between a gift and a promise. For example, if an individual gifted another individual a handbag, it is not considered a contract.
However, a contract may exist when a handbag is promised in exchange for completing a task. For example, if one party cleans the gutters, the other party will buy them a handbag.
The parties entering into a contract must both be legally competent. Individuals who are minors or are mentally impaired cannot enter into contracts.
In addition, the parties must be of sound mind when they enter into the contract. They cannot be under the influence of drugs or alcohol.
The parties must also enter into the contract on their own will. A contract will be void if there are any of the following are present on the part of any party:
- Mistake;
- Duress; or
- Fraud.
What Is the Statute of Frauds, and to What Contracts Does it Apply?
As noted above, the Statute of Frauds provides that courts will not enforce certain types of contracts unless they are in writing. The purpose of this statute is to attempt to prevent fraudulent acts.
Examples of types of contracts that are governed by the Statute of Frauds include:
- Marriage contracts;
- Contracts that will not be performed or completed within one year;
- Contracts that involve one individual’s promise to pay the debt of another individual;
- Contracts where the executor of an estate agrees to pay the debts of the estate personally;
- Contracts involving the sale or transfer of land; and
- The sale of goods is over $500.00.
The Statute of Frauds is governed by the Uniform Commercial Code (UCC). The UCC is a model statute that most states in the United States have adopted.
The UCC is commonly used to resolve contract disputes that involve the sale of goods. The Statute of Frauds may vary by state, but most statutes are similar to the UCC.
What Is Considered a Breach of a Contract?
If either of the parties to a contract fails to fulfill the legal obligation under the contract, the party has breached the contract. If one of the parties violates a contract, often the other party will suffer economic losses as a result.
For example, if an individual has hired a construction company to complete a project for them according to a certain deadline and the company fails to do so, the individual will likely suffer financial losses because the company did not keep up their end of the deal.
Several options may be available to compensate for an individual’s financial losses, including:
A court will determine the outcome and the amount of compensation the plaintiff will receive.
What Are the Different Types of Contracts?
There are numerous different contracts that parties may use to accomplish certain things. Unilateral contracts, for example, involve making a promise in exchange for specific performance.
A bilateral contract is a promise that is exchanged for a promise. Other common types of contracts include:
- Express contracts: These usually specify orally or in writing the exact terms of the contract;
- Conditional contracts: These are based upon the completion of a condition;
- Joint and several contracts: These have multiple parties involved;
- Implied contracts: These arise where courts find that a contract exists based on the situation;
- Unconscionable contracts: These put one party at a greater advantage than another one and are considered unjust;
- Adhesion contracts: These are considered to give one party more bargaining power than another and therefore result in a take it or leave it type situation;
- Option contracts: These allow an individual to enter another contract with another party at a later time; and
- Fixed prices contracts: These involve a buyer and a seller agreeing to pay a fixed price for a project.
If an individual is unsure what type of contract they are involved in or has any other questions related to contracts, they should consult a contract attorney in their area to learn more.
When Do I Need to Contact a Contract Lawyer?
A contract is something that can be easily misunderstood and may quickly become complicated. Because of this, if you have any issues with a contract, it is important to consult with a contract lawyer to help you resolve the issue.
It can be easy for contract issues to become major, especially if they involve large amounts of money or if you have evidence that the contract is invalid. It is always best to have a lawyer review any contract before you sign it to ensure that it is fair, valid, and enforceable.
