1. What Is a Contract?
2. Written Contracts
3. How Is a Contract Interpreted in Court?
4. Who Can Enter Into a Contract?
5. Understanding Consideration in a Contract

Contracts law enforces promises with state and federal laws. Contracts law is governed by state Common Law, but interpretations of the law can vary from state to state. In the event the promise outlined in the contract is breached, the law can provide compensation to the harmed party in the form of monetary damages or making good on the promise that was broken. 

What Is a Contract?

A contract is an agreement that is legally enforceable in a court of law. At the core of most contracts is a set of mutual promises known as consideration. The promises made by the parties included in the contract go toward defining the rights and obligations of all parties. If one party meets their obligations as outlined by the contract and the other party doesn't, which would be a breach of contract, the non-breaching party has the right to sue for relief in the court. 

Written Contracts

Contracts come primarily in two forms: written and oral agreements. An example of an oral agreement is when two people agree to terms over a handshake, while a written contract lays down the terms and all parties sign off in agreement. Both are enforceable, but it's easier to enforce a written contract over an oral one. The best course of action is always to have a written contract as it creates a thorough agreement, covers contingencies, and lays out expectations along with any remedies in the event something goes wrong. 

Writing down the terms of a contract means that all parties are more likely to abide by the agreement than they would with an oral agreement. The problem of an oral agreement is that each party may remember differently what they agreed to. Having a written agreement prevents most disputes and has more compliance than an oral agreement.

How Is a Contract Interpreted in Court?

The court reads the contract as it is entered into the record and gives the language a straightforward interpretation. The meaning of a contract is usually determined by the court looking at the intentions of both parties at the time the contract was created. In the event the intent isn't clear, the court looks for the customs and usage of that type of business in order to determine the intention. 

In case of oral contracts, the court may determine the intent between the parties by considering the circumstances that led to the formation of the contract as well as the dealings that have gone on between the two parties.

Who Can Enter Into a Contract?

Not everyone can legally enter into a contract.  Those who cannot enter into a contract include:

  • Mentally disabled individuals of any age
  • Individuals under the age of 18, with some exceptions depending on state law
  • Parties who are inebriated at the time of signing

All others are assumed to have the power and freedom to bind themselves by a contract. Minors can enter into a contract, but they have the right to withdraw at any time. 

Corporations have the ability to enter into contracts through the acts of their agents, employees, and officers. The ability of a certain employee to bind the corporation into a contract is decided by an area of law known as agency or corporate law. If there is doubt that the other party has the authority of the corporation to enter into a contract, insist that the contract gets reviewed and signed by the president of the corporation. A corporation has a distinct legal existence that is separate from its founders, officers, and employees. Usually the individuals associated with the corporation are not personally liable for the debts and liabilities of the corporation. This includes liability for breach of contract. 

Understanding Consideration in a Contract

Consideration is the heart of all contracts. It's what one party gets from another in return for performing obligations as outlined in the contract. However, if one party makes a promise and the other doesn't offer anything in exchange, the promise isn't enforceable and is known as a gratuitous promise. All contracts require a consideration and promise from both parties for it to be valid and enforceable in court.

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