Contract Definition Paper Brian Olson Business Law 8 January 2001 A contract is a binding agreement made between two competent parties that can be written verbal or implied. The purpose of a contract is to create an agreement that can be supported by the law (Wests Encyclopedia). As we enter the new millenium, and with the increase in the number of businesses (including e-commerce), we need to know more and more about contract law. Knowledge of contract law can also protect consumers and businesses from misunderstandings. The six elements of a contract are: binding agreement, competent parties, form required by law, legal in purpose, consideration, and genuine assent. Binding Agreement A binding agreement is a contract, verbal or written, between parties that is bound by law. When two competent parties make an agreement, it is considered binding.
A binding agreement must have an offer and an acceptance. An example of a binding agreement would be if Kelly told Jamie that she would buy her car for $6,000 and they both agreed to it. This agreement is legal in purpose, supported by consideration, is in the form required by law and is made by two competent parties who gave genuine assent. Competent Parties To make an agreement a legal contract, both parties have to be competent. All adults are assumed to be competent. Its important for people who are making contracts to be of sound mind.
This means that the people involved cannot be under the influence of any substances or be mentally ill. Convicts and enemy aliens are also considered to lack capacity. Capacity means the ability to understand ones actions and the effects of those actions. It is legal for minors to enter into contracts, but they cannot be bound by law because younger people have limited experience and are more vulnerable than adults (Mietus 163). The purpose of competency is so people dont take advantage of those who are not competent when entering into contracts.
When an adult makes a contract with a minor, the minor is the only one who can disaffirm the contract. The adult is bound by law (Mietus 163). An example of a contract that cannot legally be bound would be if John wanted to buy Ryans car for $2000 and Ryan refused. Later that day, John took Ryan out to a bar and offered him several drinks. John offered to buy Ryans car again and Ryan agreed because he was under the influence of alcohol.
Due to Ryans lack of competency, this contract is void. Consideration Consideration is the promise or action that one person (the promisor) gives in exchange for the promise or action of the promisee (Mietus 198). A promise of giving without receiving is not a legal contract and would be called lack of consideration. An example of lack of consideration would be if grandpa said he would pay for your college tuition if you get straight As in high school and then decides not to do it. That promise would not be legally binding because he is not getting anything in return.
Both parties must get something in return for the contact to be legal. An example of consideration is if two competent parties traded a pen for a watch. Each party is giving and receiving something of value, which is called consideration. One of the exceptions to consideration is promissory estoppel. An example of this would be if your dad said he would buy you a brand new car if you paid your way through law school. Because you suffered an economic loss to hold up your end of the bargain, the other party could be legally bound by promissory estoppel. Another exception to consideration are charitable contributions.
For example, if I told Red Cross that I was going to donate $500 per year, then I could be legally bound to do so. Genuine Assent Genuine assent exists when consent is not clouded by fraud, duress, undo influence or mistake (Mietus 212). For example, if Billy pulled out a gun and got Ed to agree to sell his bike for $5, Ed is under duress and is not giving genuine assent to sell the bike. Genuine assent must be communicated clearly in some way (written, verbal or strongly implied). An example of not giving genuine assent would be if you were at an auction and the actioneer said sold to you because you were scratching your arm and were not bidding on the item.
This would be a case of you not giving genuine assent. Legal and Purpose For a contract to be a legal contract, it has to also be something that is not breaking the law in any way. You cannot be bound to an agreement that is illegal. The contract has to be legal in purpose for in to be enforceable. An example would be if Billy told Bob he would pay him $50 to steal a necklace. Because it is illegal to steal, if Bob stole the necklace and didnt give it to Billy and kept the $50, Bob couldnt be bound to the contract.
Even if Billy gave Bob $50 to steal the necklace and Bob didnt do it and kept the money, they still would not have a legal agreement. Form Required by Law Unless a particular form is required by statute, contracts may be oral or written. They may even be implied by conduct (Mietus 232). There are two types of contracts: formal or simple. A formal contract is a written contract that has to be in a special form to be enforced by law.
Car titles are an example of a formal contract because there is one standard way to transfer ownership. There is always going to be some paperwork involved in a car title transfer contract. The majority of contracts are simple, which means they are not formal. Simple contracts can be verbal, written or implied. In general, it better to have a written contract because there is then proof of an agreement.
When an agreement is verbal, it is hard to prove in court whether or not it is a valid agreement. An example of a simple contract would be borrowing money from a friend. In the simplest form the friends could verbally agree on the terms of the loan. Joe borrows $10 from John and tells John that he will pay him back next week when he gets paid. John could want that statement in writing just to be reassured of being paid.
This would not make it a formal contract because a written agreement in this situation is not required by law for it to be binding. Conclusion It is important to have an understanding of the six elements of contract law. You should know what you are doing before you get involved in a contract so you avoid misunderstandings. I have learned that you can legally get into a contract without it being in writing or even spoken. An example of this would be paying bus fare to ride Valley Transit to travel. Without speaking there is an agreement involved.
My suggestion for getting into contracts is to get things in writing because it is so hard to prove verbal agreements in a court of law. Bibliography Mietus, Adamson and Edward Conry. Applied Business Law. Cincinnati: South-Western Publishing Co., 1988. West Legal Dictionary. Online. http://www.wld.com/confus/weal/wcontral.htm.