In this overview of contract law, we’ll take a look at some of the elements of a legally valid contract, including also, effective offers and non-offers. Additionally, “shrink wrap” and click-on agreements, and how they differ from other contracts and yet still relate to contract law is covered. Lastly, we’ll look at consideration and what the requirements are in the eyes of the law for consideration to be legally sufficient.
Contract Law Basics
Contract law is sourced from Common law, except in certain cases when contracts are modified by statutory law such as UCC (Uniform Commercial Code.) At its core, a contract is fundamental to business functions by establishing a binding relationship between parties. Contracts are used for creating rights and duties between parties, in the form of a promisor (party who extends an offer or promise), and the promisee (party who accepts it.)
An Agreement is formed between two or more parties, and once made, can be legally enforced in a court of law. If one or more parties fails to perform on the terms negotiated in the agreement, damages are owed to the other party. An agreement is only part of a contract though, additional elements include the contract’s legality, capacity, and consideration.
A Consideration is defined as “value given in exchange for a promise”, and must be something of sufficient value exchanged for that promise. It is important for there to be an exchange of genuine value else the exchange would be classified more correctly as a gift.
Capacity within contract law is whether an individual is considered legally able to make and keep contractual agreements. Minors and the mentally ill are examples of situations where people can be considered lacking the legal capacity to make “amendments to their rights, duties, and obligations” (for example getting married.)
Contract Legality means that the original contract entered into must be legal to be enforceable. The contract must adhere to statutes and laws, not “offending public good” or it will never have been considered formed in the first place.
There are several different types of contracts, and different ways to go about forming them. Below we will overview some of the more common ways. The first is type is bilateral and unilateral formation.
Bilateral and Unilateral Contracts
In a bilateral contact, a promiser/offeror and a promisee/offeree both mutually exchange promises to each other. Examples of bilateral contracts are “present in everyday life. You enter a type of agreement every time you buy something at the store, purchase a meal at a restaurant, get treated by your doctor for something, or surprisingly, simply checking out a book at the library. In each situation, you’ve promised a certain action to another party in response to that party’s action.”
Unilateral contracts are a contract where the initial obligation only extends one way, with one party promising another something without any initial reciprocation. Rocketlawer also provides a good example of unilateral agreements: “Suppose you lose your dog, and you place an ad in the newspaper or maybe online offering a $100 reward to whomever returns your missing pet. By offering the reward, you’re offering a unilateral contract, promising to pay should anyone fulfill the obligation of returning your dog. You’re the only person who has taken any action in this contract, as no one is specifically responsible or obligated to finding your dog passed on this interaction.” Once the offeree performs the terms of the contract, modern view is that the offer then becomes irrevocable and the offeror cannot withdraw the contract.
Formal and Informal Contracts
With formal and informal contracts, a formal contract is written, and is either sealed, a negotiated instruments contract, or a recognizances contract. Informal contracts are anything that is not a formal contract. Contract-law.law.com provides more insight on these three types of formal contracts.
“When you enter into a contract under seal you bind yourself to the terms of the contract until the amendments are put under seal, in addition to the contract itself being physically destroyed. A negotiable instrument is a legal contract that states the amount of a fixed payment to be made. Recognizances are formal contracts made by parties before a court of law. A recognizance is considered a contract because the terms are made clear and must be agreed to before you’re released. They are contracts between a party and the state.”
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