An Introduction To Basic Contract Law
By: Richard E. Korb[1]
A contract, whether verbal or in writing, is a legally binding agreement enforceable in a court of law. However, not all agreements between two parties are legally binding contracts. For it to be considered a valid contract, certain elements must exist.
Offer
An offer is a proposal to make a deal. An offer must be communicated to another person, and it remains open until it is accepted, rejected, retracted or has expired. A counter-offer closes the original offer.
The offer will contain terms, which are elements that help define the scope of an agreement. Imagine, for example, that Mr. Jones has a house to rent. The terms of the rental offer would include the price (rent), description of the property (such as its address) and the length of the contract.
Terms for other contracts must be specific and definite because the offer has to identify the basic obligation of the contract. For example, if Mr. Jones says, “I offer to sell my house to you,” it ordinarily would not be a sufficient offer to give rise to a contract because it doesn’t include any of the necessary details such as price and other terms required in a house sale transaction.
Acceptance
Acceptance is an acknowledgment by the person to whom the offer was made that the offer is accepted. The acceptance must comply with the terms of the offer and must be communicated to the person who proposed the deal. For example, Mr. Jones offers to rent his house for $500 in cash each month, for a period of one year. To accept the offer, Mr. Brown, the renter, has to accept the offer to rent the house, pay $500 cash each month, and make continuing payments on a monthly basis.
Consideration
Consideration is the bargained-for exchange. It is the legal benefit received by one person and the legal detriment imposed on the other person. Usually consideration takes the form of money, property or services. Using the house example, there is consideration on both sides of the contract. Mr. Jones, the owner, gives up use of the house and gets $500 a month; Mr. Brown, the renter, gives up $500 a month and gets a home to live in. An agreement without consideration is not a contract.
Other Requirements
Beside the fundamental elements of a contract (offer, acceptance, and consideration), there are other requirements:
- Competence
- Consent
- Legality
Competence
Competence to make a contract means each party has the legal capacity to make a contract. Generally, people are considered to be competent to make contracts if they are over 18 years of age and of sound mind.
A minor (usually, a person under 18 years of age) who makes a contract can rescind or void it, with one general exception. A minor contracting for “necessities” is bound to pay for their reasonable value. A “necessity” can be food or shelter but, depending upon the law of the particular state, it may also include cars or other items. A minor who rescinds a contract gets back whatever the other party received from the minor.
People who are of unsound mind, that is, those who are incompetent because of mental illness or disability, can rescind their contracts, but the standard is high. Usually, a person who is incompetent must have made the contract without understanding that they were making a contract and without realizing the consequences of their action.
Consent
Consent means that each party to the contract must agree to the terms of the contract. This requirement of consent fits the general idea of contract as a private law-making activity. However, consent does not mean that you have to know what the contract says. For example, when signing a rental-car agreement at the airport counter, you don’t know what the terms are in this contract but you agree to them by signing the contract. The law presumes you have consented to a contract by signing it or manifesting some other type of assent, such as clicking on “I accept” buttons in dialog boxes on your computer screen.
Legality
For a contract to be enforceable, it must involve a legal activity. The law does not enforce contracts based on illegal activity. For example, a winner of a poker game usually cannot go into court and enforce an IOU in a state in which that type of gambling is illegal.
For more information concerning contracts or for a free consultation with an experienced business attorney with offices in Berkeley-Oakland -Walnut Creek, Please call Richard Korb at 510-524-0903.
[1] RICHARD E. KORB is a seasoned attorney with 30 years of business, real estate and bankruptcy litigation and transactional experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, and general civil law and he has drafted and negotiated over 200 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters. In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts.
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