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Definition Of A Contract Essay

1082 words - 4 pages

A contract is an agreement that is enforceable by law. Modern business could not exist without such contracts. Most business transactions involve commitments to furnish goods, services, or real property; these commitments are usually in the form of contracts.Use of the contract in business affairs ensures, to some extent, the performance of an agreement, for a party that breaks a contract may be sued in court for the damages caused by the breach. Sometimes, however, a party that breaks a contract may be persuaded to make an out-of-court settlement, thus saving the expense of legal proceedings.A contract arises when an offer to make a contract is accepted. An offer contains a promise (for example, 'I will pay $1,000') and a request for something in return (a person's car). The acceptance consists of an assent by the party to whom the offer is made, showing that the person agrees to the terms offered. The offer may be terminated in a number of ways. For example, the party making the offer may cancel it (a revocation), or the party to whom the offer is made may reject it. When the party to whom the offer is made responds with a different offer, called a counteroffer, the original offer is terminated. Then the counteroffer may be accepted by the party making the original offer.REQUIREMENTS OF A VALID CONTRACTFor a contract to be valid, both parties must give their assent. They must act in such a way that the other people involved believe their intention is to make a contract. Thus a person who is clearly not sincere in saying that he or she accepts an offer usually is not held to a contract by the courts. On the other hand, a person who secretly has no intention of making a contract but who acts in a manner that leads people to believe he or she had, may be held to a contract. Legally, it is the external appearance that determines whether one is held to a contract.ConsiderationA contract results from a bargain. This implies that each party to the contract gives up something, or promises to, in exchange for something given up or promised by the other party. This is called consideration. In the example given above, the consideration on one side is the promise to pay $1,000, and on the other, the promise to deliver a car. With rare exceptions, a promise by one party, without some form of consideration being extended by the other party, does not result in a contract or other enforceable obligation, regardless of the sincerity of the promise. Although each party must extend consideration to the other in order to form a contract, the value of the consideration need not be equal. Determining how good a bargain is becomes the responsibility of the parties involved. Otherwise, the courts would be in the impossible position of having to appraise the relative value of millions of promises made every year.CompetenceFor a contract to be enforceable it must be between competent parties. A contract with a person who has been adjudicated insane is likely to be...

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