Contracts
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Contracts
A contract is a promise or agreement made between two or more parties, which is enforceable by law. Contracts are formed when parties make an agreement to provide services, sell and purchase goods, or perform duties for something in return. To be legally binding, the contracts must be exchanged for mutual or adequate consideration and should define the rights and obligations of the parties involved.
Consideration to a contract is what one party will get from the other in return for performing the obligations set forth. If one party makes a promise and the other offers nothing in return, the promise may not be enforced for lack of consideration. Some states no longer require consideration for certain types of promises; however, promises made in the context of business relationships are usually made for mutual consideration.
Modern business could not exist without contracts and because they are enforceable by the courts, parties who enter into contracts can rely on them to structure their business relationships. Most business transactions involve commitments to furnish goods, services, or real property, and are assured in the form of contracts. Use of contracts in business affairs ensures, to some extent, the performance of an agreement.
The law provides remedies for breaches and recognizes performance of a contract as a duty. If one party meets its contractual obligations and the other party does not, the nonbreaching party is entitled to sue and receive relief through the courts. Recompense is generally provided in the form of monies, which the nonbreaching party would have enjoyed, had the contract not been breached in the first place. In certain cases, the courts may order the offending party to perform the duties agreed upon to meet its contractual obligations. Sometimes, however, parties may be persuaded to make out-of-court settlements, thus saving the expense of legal proceedings.
Contracts are primarily governed by state statutory and common law, and in a sense, private law. Private law principally includes an agreement between the parties who are exchanging promises with the rights and obligations of the parties determined by the contract’s terms, which are subject to limits imposed by relevant statutes. Statutory law may require some contracts be written and executed with particular formalities; however, some parties may enter into binding agreements without signing formal documents.
Most contracts are enforceable whether assented to either orally or in writing; however, most, if not all business transactions should be conducted in writing. Writing the contract’s terms and signing it compels both parties to think about, and consent to, understanding the obligations they are undertaking. Written contracts aid in the creation of complete and thorough agreements and help to eliminate disputes over who promised what. If an issue is forced to court, written contracts are likely to hold up better than oral agreements, which could differ substantially than the initial terms of the agreement.
Minors and individuals deemed mentally incompetent may not enter into any binding contracts. In most states, the legal age to tender a contract is the age of majority, or 18. Mental competency is tested by whether or not the individual understands the nature and consequences of the transaction in question. Less the aforementioned, any others who wish to enter into a contract are assumed to have full power to do so.
Corporations have the ability to enter into contracts; however, the power to bind them to the contract is determined by corporate law. While maintaining a separate legal existence from its founders, officers, employees, or agents, it may be entered into a contract through certain acts of these individuals; however, typically, they may not be held responsible for the corporation’s debts or liabilities, to include a breach of contract.
Contracts are formed when one party (the offeror) makes an offer, which is accepted by another (the offeree). In order for the contract to be formed, the offeror should not assume the proposal to be accepted, rather it be so verbally or in writing by the offeree. Prior to acceptance, there is no contract and liability is based on consent. Prior to accepting the proposal, the offeror has the power to revoke the