Basic Contract Law: Everything You Need to Know
Basic contract law covers different phases of negotiation and contract creation i.e. if one of the parties fails to perform then the other party can sue.3 min read
Basic contract law covers the many different phases of negotiation and contract creation. If a contract is formed and one of the parties fails to perform, then the other party can sue to enforce the deal. This is where basic contract law comes in.
Contracts bind the parties to it to perform whatever has been promised. This is an important aspect of the business world. Businesses cannot afford to have a manufacturer, or other company it has contracted with and relied upon, not perform. And if that party does not hold up its side of the contract, the business has a legal claim under contract law for certain remedies and/or damages depending on the type of contract and its provisions.
The first question discussed by a court will be whether there was enforceable contract formation. Every contract must meet the following requirements.
There must be a clear and definite offer to contract. The offer cannot be vague. An offer is a clear willing articulation by the offeror to contract on particular terms with another party, the offeree, with the understanding that the contract will become binding when accepted by the offeree.
An offer can be communicated in a number of ways:
- In person
- By letter
- By publication
- By email
- By behavior
If your behavior and actions clearly convey the willingness to contract on the particular terms agreed to by the offeree, this can be construed as an offer by the court.
An offer should consist of
- A manifestation of intent by the offeror to be bound by a contract
- The specific terms of the contract the party wishes to offer
- Communication which usually identifies the offeree. There are offers that do not specifically identify a person, but a person can be clearly identified once accepted. This is often true in bilateral contracts
If any of these requirements are not met, the communication was not an offer.
An offer must be accepted unambiguously through words, actions, or performance. The means of acceptance should be laid out in the offer. If not, the acceptance must be through reasonable means.
The default rule in contracts that are not for the sale of goods, is that the acceptance must mirror the terms of the offer. This is called the mirror image rule. If the acceptance is not mirror image and the offeree tries to add terms, this will not be viewed as acceptance, but rather as a rejection of the original offer and a counteroffer.
If the contract is for the sale of goods between merchants; however, then the acceptance does not have to follow the mirror image rule. In fact, the additional terms proposed will be included unless:
(a) The terms added as a part of the acceptance materially alter the original offer (change the amount of damages or right to remedy) (b) The offeror objects to the new terms within a reasonable time; or (c) The offeree conditions acceptance on the new or different terms
Consideration is required to have a valid contract. Without it, there is no contract. If each party gives or promises to give the other party something of value, then there is consideration. Consideration can be money, services, a promise to perform, or a promise to not do something. Usually the value of the consideration is what induced one or both parties to enter into the contract in the first place.
Some courts in deciding whether there is a valid enforceable contract must distinguish between consideration for a contract and a gift. A gift is a voluntary and gratuitous transfer of property from one person to another, without something of value promised in return. With a gift, there is a one-sided promise or performance. The other party has not transferred or promised to transfer anything of value to the individual giving the gift. Therefore, if that individual does not follow through, the person receiving the gift may not sue for breach of contract as there was no consideration and therefore no valid contract.
Other Requirements of a contract
- The purpose of the contract must be legal and not violate public policy
- The parties must have the capacity to contract. They must understand the binding nature of the contract. Minors and mentally ill individuals often do not have the capacity to contract
- The parties must have mutual assent, or a "meeting of the minds." The parties must both intend to be bound by their agreement and must agree on the essential terms
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