In contract formation, there are a number of factors that courts usually use in determining whether the contract is legally binding. Contracts are generally used to establish a legal relationship among the parties involved, such as a seller and a buyer. Because each party has its interests, the parties ensure that the contract has the proper elements to legally bind each other to fulfill contractual obligations. This article discusses the elements to form a contract, the significance of legal capacity, types of contracts, and revisions to contracts. These factors apply to various contracts in different contexts, such as interpersonal contracts and business contracts.
Elements to Form a Contract
There are specific elements needed to ensure that a contract is legal and binding, so that the contract terms could be enforced. The elements necessary to form a contract are as follows:
Offer and Acceptance. Offer refers to what one of the parties offers to the other party. Acceptance is the agreement of the other party to accept such an offer. If one party offers to provide a service for a specified price, the other party would need to accept such an offer as part of the formation of a contract between the two parties. In contract formation, it is necessary for at least one of the parties to offer something and at least one party to accept such an offer.
Intention. The parties must have the intention to create a legal relationship with each other. They must have the intention to fulfill their obligations, such as paying for a fee, or providing a good or service.
Consideration. Consideration refers to the price or value that each party would provide to the other party when entering a contract. The concept of consideration is grounded on the principle that the parties entering a contract must offer some kind of benefit to each other. For example, in the case of the sale of a car with a price tag of $20,000, the buyer’s consideration would be the money he would pay for the car, while the seller’s consideration would be the car.
Effect of Legal Capacity and Its Deficiency on Contract Elements
Legal capacity refers to the capacity of the parties to enter the contract and make legal amendments to their specific rights and duties. Legality refers to the permissibility of the activities that the parties would be doing. Only legal activities make the contract legally binding.
Legal capacity affects legality in that legal capacity determines if the contract is legally binding at all. Legal capacity affects the contract elements in that it determines if the parties are able to make the offer or accept the offer, and if they are in the capacity to agree to and fulfill the considerations. Legal capacity also affects how the parties’ intention could be honored in court. A deficiency in legal capacity may be corrected through the involvement of legal guardians or entities authorized to enter the contract.
Types and Examples of Contracts
Contracts, personal or professional, include contracts in the purchase of goods and services, such as home appliances and a car. Students are in a contract with the school or academic institution, where they agree to pay for formal education that the school offers. In an employment contract, the employer agrees to pay workers appropriately, according to the law, for the service or labor the worker renders. There are also unwritten contracts, such as when one borrows or lends money to a friend.
Unilateral Contracts vs. Bilateral Contracts: Differences and Examples
In a unilateral contract, one of the contracting parties promises to do something for the other parties involved. This means that only one party makes a promise to do something, such as to make a payment or provide a certain good, while the other parties do not make a corresponding promise. In a bilateral contract, each of the contracting parties makes a promise. For instance, one party could promise to properly repaint a car, while the other party promises to pay a certain amount for the repainting.
Most contracts are bilateral, and only a minority of contracts is unilateral. For example, a student’s contract with a university is unilateral, in that the university is obligated to provide proper education if the student continues attending classes, but the student is not obligated to attend classes and can stop attending classes and stop paying at his convenience. The contract in the purchase of home appliances is an example of a bilateral contract. The seller and the buyer promise something to each other: The seller promises to provide the appliance and the buyer promises to pay the appliance’s price. An employment contract is unilateral because the employer promises to pay the worker only if the worker works. The worker is not obligated to keep working for the employer.
Revisions of any contract may be done through detailed examination of the conditions of the contract. Any revision must be amenable to all the contracting parties. When a party rejects the proposed revision, the revision is invalid and cannot be applied. Any proposed revision to the contract must be based on the existing conditions already specified in the contract. The proposed revision must not remove contractual duties that need to be fulfilled, unless the parties agree to such removal.
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- Beesley, C. (2014). Contract Law – How to Create a Legally Binding Contract [Opens in New Window]. U.S. Small Business Administration.
- North Carolina Department of Justice (2015). Right to Cancel [Opens in New Window]