Legal Help - Legal Advice - What is a Contract?

A contract is a legally enforceable agreement between two or more parties. There are certain elements that any contract must possess in order for it to be enforceable. First of all, in a contract there must be an agreement.

How is an agreement shown between the contracting parties?
In general, this is shown by two required elements of a contract, an offer and an acceptance. The offeror (the party who makes the offer) must make an offer to the offeree (the party who can accept the offer). An offer is a proposal to form a contract. When an acceptance is rendered, a contract will then exist between the parties. An offer can be as simple as saying, I'll sell you car my car for $400. An acceptance - the offeree's assent to the terms of the offer - can be as simple as saying, You have a deal. In order for there to truly be an agreement between the parties, there must be a “meeting of the minds,” meaning that they must be agreeing to the same terms. This is why the terms of the contract must be clear and definite and understood by the parties. For instance, if one party believes that he is selling his car to the other party for $1,000 and the other party believes that he is buying the car not for $1,000 but for $500, there is not truly a meeting of the minds and there is a mistake on the part of one or both of the parties. The court would then have to determine whether the contract is still enforceable.

An agreement is the core of a contract, therefore, offers and acceptances must be clearly communicated. For instance, when an offeror makes an offer, he must make that offer to the offeree. Just making the offer does not automatically create a contract. The offeror must wait for the offeree to accept the offer, meaning he assents to the terms, in order for the contract to be formed. An offer can be written or oral. An offer can give a certain time frame in which the offeree must respond although there does not have to be a time frame. In some cases, the offeree instead must respond in a “reasonable” fashion. The offer can require a certain way to accept the offer, i.e. written acceptance or oral acceptance.

Both the offeror and the offeree have the right to decide if they do not want to be a part of a contract, but they must communicate this information to each other. For instance, an offeror may rescind the offer, which is known as revocation, any time before the offeree accepts the offer, but he must communicate that revocation to the offeree. Conversely, an offeree has the right to reject an offer. He can do this in a number of ways. He can literally tell the offeror that he is rejecting the offer. Also, in most instances, he could reject the offer by simply not responding. Finally, he can reject the offer by creating a counteroffer. For example, the offeror makes the offer to sell his car to the offeree for $20,000. The offeree says he is not willing to pay $20,000, but he will “offer” to buy the car for $10,000 instead. This counteroffer terminates the previous offer and becomes the new offer. Now, the offeror must determine whether or not to accept the new “offer.”

A contract must have agreement, which is often shown by a definite offer and acceptance. There is another element that all contracts must have, consideration. Consideration is what distinguishes a contract from a simple gift. Consideration is the bargained for agreement between the parties. In other words, consideration is what one party to a contract will get from the other party in return for performing contract obligations. In the most basic contract, i.e. a person offering to sell something to another party, this required consideration is shown quite easily. Consideration exists because the promise to pay money for something is a bargained for agreement. One party will get money for the item he is selling, and the other party will get the item. Consideration can also be shown by a party agreeing to not do something which he has the legal right to do. For instance, in an actual tried case, the court found that sufficient consideration existed when a person offered to give one of his family members a large sum of money only if that family member chose to give up smoking and partying, activities which he had the legal right to do. The family member gave up those “vices,” and the court found that his giving up those activities was sufficient consideration.

Consideration is what separates a contract from a gift or a “gratuitous promise,” which is unenforceable. An example of a “gratuitous promise” would be if a person simply says that he is going to give another person $10,000. There is no bargained for agreement between the parties; this gratuitous promise lacks consideration. Therefore, the person who made this promise can change his mind if he wants to, and he cannot be forced to fulfill the promise. It is not a contract. If he chooses to fulfill the promise, it is still not a contract but rather, he is giving a gift.

Finally, a contract must be legal. For instance, a contract in which the parties agree to sell illegal drugs to each other would be an illegal contract and would not be enforceable.

What is a Contract?

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