Contract law is the body of law involved with making and enforcing agreements between individuals, groups, and organizations. A contract is a legally binding agreement between two or more parties that is enforceable by the court. Contract law, therefore, regulates the process of making and enforcing contracts and providing a remedy in case one party fails to fulfill their contractual agreement.
People make contracts every day. Contracts ensure that parties adhere to their promises, thereby eliminating any misunderstandings and ensuring smooth transactions. Since contracts are legally enforceable, any party that breaches the contract can be sued in court. This allows both parties to conduct their affairs and fulfill their promises confidently.
Formation of a Contract
A valid contract must have the following four elements.
- Offer – Formation of a contract begins when one party makes an offer. They must specify the terms and conditions which the other party has to agree to. If the other person is willing to honor these terms, they agree, and the contract is completed.
- Acceptance – As stated earlier, accepting an offer makes a contract complete. The party accepting the offer must notify the offerer that they have accepted the offer.
- Consideration – A valid contract involves both parties giving up something of value. This is known as consideration. For instance, a contract involving the sale of a piece of land, the buyer pays using money while the seller gives up the piece of land.
- Intention to be legally bound – A contract is only valid if both parties intend to honor the terms of and conditions of the contract. If the document specifies that it is only a statement of intent, then the parties may not have mutual intent to enter into an agreement, and the contract will not be valid.
In most cases, contracts are written down and signed by both parties as evidence of their intention to commit. However, there are other forms of contracts that are legally enforceable by law. A contract can be implied. For instance, when you order food from a restaurant, you imply that you will pay for the meal after you finish eating. A promise of reward to a person in exchange for something or a certain behavior creates a valid contract.
When interpreting and enforcing contract law, the court looks at the language of the contract in detail, taking the viewpoint of a reasonable person to resolve the dispute. In the case of a breach of contract, the court may offer remedies including financial compensation by the breaching party.