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Contracts Overview

A contract is a promise or a set of promises, the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty. The law of contracts is confined to promises that the law will enforce.

Contracts govern a wide range of human activity such as:

• purchase and sale of real estate,
• employment,
• insurance,
• furnishing of services such as:
  • medical,
  • legal,
  • engineering,
  • architectural,
  • painting,
  • construction,
  • education,
  • loans,
  • software licensing,
  • publishing,
  • movie-making,
  • dry-cleaning, etc.

What Constitutes a Contract

Contract:
An oral or written agreement between two or more parties which is enforceable by law. In order to be valid, a contract requires an offer, an acceptance of that offer and, in common-law jurisdictions, consideration.

Consideration:
Under common-law, one of the three criteria that have to be met before a contract is binding. Refers to money or payment of money or some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

Offer

An offer must be a clear, unequivocal and direct approach to another party to contract. For this reason, advertisements, and catalogues are not offers. The law calls these "invitations to treat"; or invitations to the general public to make an offer on a particular item.

An offer, once made, can be revoked before acceptance unless it is under seal. An offer can also expire if a deadline for acceptance passes. If there is no specified deadline, then the offer expires in a "reasonable time", depending on the subject-matter of the contract.

Acceptance

It is at this moment that a contract exists. The acceptance must be clear, unequivocal, unconditional and made by the person to whom the offer is intended.

Consideration

Consideration:
Under common-law, one of the three criteria that have to be met before a contract is binding. Refers to money or payment of money or some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

There is one exception to the requirement of "consideration" and that is a "deed", which is a contract "under seal" or a "specialty contract". Deeds are used mostly in contracts that involve real estate. If a contract is a "deed", then no consideration is required.