What is a Contract?

A contract is a promise enforceable in a court of law. A contract may be formed when two or more parties each promise to perform or refrain from performing some act now or in the future. Such promises need not be in writing to constitute a valid contract, but some contracts need to be written to be enforceable.

What are the Necessary Elements of a Contract?

There are four basic elements necessary for an enforceable contract:

  1. Agreement

    The act of two or more individuals who unite in expressing a mutual and common purpose, with the view of altering their rights and obligations.

    What is an offer?

    There are three requirements of an offer:

    1. Intention – there must be a serious intention by the offeror to become bound by the offer.
    2. Definiteness – terms of the offer must be reasonably certain or definite so that they can be ascertained by the parties and a court of law.
    3. Communication – terms of the offer must be communicated by the offeror to the offeree.
    What constitutes acceptance?

    An acceptance is a voluntary act (words or conduct) by the offeree that indicates agreement to the terms of the offer. Acceptance must be unequivocal and communicated to the offerer. Generally, only the individual to whom the offer was made may accept the offer.

    May an offer be terminated or revoked?

    The power of the offeree to transform the offer into a binding legal obligation can usually be terminated by any of the following actions: revocation of the offer by the offeror prior to acceptance by the offeree; rejection of the offer by the offeree; counteroffer by the offeree revokes the initial offer.

  2. Consideration

    Consideration is the legal term for an inducement to contract.

    When is consideration legally sufficient?

    To be legally sufficient consideration for a promise must be legally detrimental to the promisee or legally beneficial to the promisor.

    Generally the courts will not question the adequacy of consideration unless there is a suspicion of unfair or inequitable dealing. A promise for a pre-existing legal duty is not accepted as consideration where no additional benefit is given or received. Promises based on a moral duty are generally not enforceable; promises based on past actions are not enforceable.

    The Uniform Commercial Code outlines a number of exceptions to consideration doctrine in the business environment.

  3. Capacity

    Both parties entering into a contract must have the contractual capacity to do so; the law must recognize them as possessing characteristics that qualify them as competent parties.

    What is a minor?

    The age of majority in New York State is 18.

    May a minor enter a contract?

    A minor may enter into an enforceable contract! However, the minor may disaffirm the obligations of the contract up to a reasonable amount of time AFTER the reaching the age of majority. As with most contract rules, there are specific exceptions for certain circumstances. (A minor may not disaffirm a student loan obligation or a commitment to military service.)

  4. Legality

    The contract must be made to accomplish some goal that is legal and not contrary to public policy or statute.

    What is the Statute of Frauds?

    The Statute of Frauds is a term that refers to the law or laws of a State, which require certain agreements to be in writing in order to be enforceable. The Statute of Frauds includes specific provisions for land sales, marriage promises (property and goods attached to marriage proposals), agreements with a duration that exceeds a year, goods over $500.00, and collateral promises. Individual States have other guidelines for specific circumstances and business transactions. Any contract related to any of the aforementioned exceptions requires a written instrument. Oral agreements under a proviso of the Statute of Frauds are unenforceable.

    What is a Breach of Contract?

    A breach of contract is the non-performance of a contractual duty. The non-breaching party will have a right to a legal remedy. The types of remedies available will vary depending on the specific circumstances. A party can be discharged by four methods from an obligation of a contract that has not been completed.

    1. Recision occurs when the contract is cancelled or terminated and the parties are returned to their legal positions they occupied prior to the contract.
    2. Novation occurs when both parties agree in writing (or orally) to the substitution of a new party for one or more of the original parties.
    3. Accord and satisfaction occurs when parties agree to accept performance of the contract by different terms than originally agreed upon.
    4. Discharge by operation of law occurs when a court determines that a contract is invalid. Typically, courts will discharge contract obligations when a contact is materially modified by one party, the statute of limitations runs on a contract, bad-faith bargaining occurs, death of a party, and other legal grounds.

There are numerous federal and state laws that have been enacted which are designed to protect the average consumer in the field of contracts. These laws attempt to balance the powers of the parties to negotiate.

Packet Published 1995, 2001

Researched and Composed by Joseph O'Brian

Revised by Michelle A. Hager 1996, John Menard 2001

SBI Legal Assistance Director: Alex Melville

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