Contracts

A contract is an agreement that is enforceable by law. Modern business could not

exist without such contracts. Most business transactions involve commitments to

furnish goods, services, or real property; these commitments are usually in the

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

legal proceedings.

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.

Consideration

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.

Competence

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

void. A contract involving a minor--in most states of the United States a minor

is now a person under 18--may be enforced or voided by the minor, unless the

contract is for necessities such as food,