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Practice Definitions  | Contracts


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A contract is any legally-enforceable promise or set of promises made between parties. In the civil law, contracts are considered to be part of the general law of obligations.

Scope of common law contract lawBasic common law contract law addresses four sets of issues:
  • When and how is a contract formed?
  • When may a party escape obligations of a contract (such as a contract formed under duress or because of a misrepresentation)?
  • What is the meaning and effect to be given to the terms of a contract?
  • What is the remedy to be given for breach of a contract?
Contract formation: There must be an agreement which consists of an offer and acceptance, consideration (see also consideration under English law) and contractual intention for a simple contract to exist: i.e. it is not a deed - otherwise no consideration is needed.

Subject to the sine qua non of Contract Formation, other ingredients that make up a contract include:
  • Form - In some cases, certain formalities (that is, writing) must be observed.
  • Capacity - The parties must be legally capable of entering into a contract.
  • Consent - The agreement must have been entered into freely. Consent may be vitiated by duress or undue influence.
  • Legality - The purpose of the agreement must not be illegal or contrary to public policy.
A contract which possesses all of the above ingredients is said to be valid. The absence of an essential element will render the contract either void, voidable or unenforceable.

Validity of contracts

For a contract to be valid, it must meet the following criteria:
  • Mutual agreement - There must be an express or implied agreement. The essential requirement is that there be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement. (Notice that the objective mainifestation requirement means that one need not actually have assented so long as a reasonable person would believe that assent had been granted.) For a contract based on offer and acceptance to be enforced, the terms must be capable of determination in a way that it is clear that the parties assent was given to the same terms. The terms, like the manifestation of assent itself, are determined objectively.
  • Consideration: There must be consideration given by all the parties, meaning that every party is conferring a benefit on the other party or himself sustaining a recognizable detriment, such as a reduction of the party's alternative courses of action where the party would otherwise be free to act with respect to the subject matter without any limitation.
  • Competent, Adult (Sui Juris) Parties: Both parties must have the capacity to understand the terms of the contract they are entering into, and the consequences of the promises they make. For example, animals, minor children, and mentally disabled individuals do not have the capacity to form a contract, and any contracts with them will be considered void or voidable. Although corporations are technically legal fictions, they are considered persons under the law, and thus fit to engage in contracts.
For adults, most jurisdictions have statutes declaring that the capacity of parties to a contract is presumed, so that one resisting enforcement of a contract on grounds that a party lacked the capacity to be bound bears the burden of persuasion on the issue of capacity.
  • Proper Subject Matter: The contract must have a lawful purpose. A contract to commit murder in exchange for money will not be enforced by the courts. It is void ab initio, meaning "from the beginning."
  • Mutual Right to Remedy: Both parties must have an equal right to remedy upon breach of the terms by the other party.
  • Mutual Obligation to Perform: Both Parties must have some obligation to fulfill to the other. This can be distinct from consideration, which may be an initial inducement into the contract.
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