1.1 Definition and Elements of a Contract

Contracts are the backbone of business and personal transactions. They're legally binding agreements that create rights and obligations between parties. To be valid, contracts need an offer, acceptance, and consideration, along with capacity and legality.

There are different types of contracts, like bilateral and unilateral, express and implied. When analyzing contract formation, look for a clear offer, valid acceptance, consideration, capacity, and legality. Watch out for factors that could make a contract voidable, like duress or misrepresentation.

Definition and Elements of a Contract

Definition and significance of contracts

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• Legally enforceable agreement between two or more parties creates legal rights and obligations
• Requires valid offer, acceptance, and consideration to be binding
• Provides means for parties to enter into binding agreements for exchange of goods, services, or promises in predictable and enforceable manner
• Offers remedies for breach of contract such as damages or specific performance to protect parties' interests

Essential elements of valid contracts

• Offer: Clear, definite, and unambiguous promise or commitment to do or refrain from doing something communicated to offeree
  • Can be revoked before acceptance (e.g., job offer withdrawn before candidate accepts)
• Acceptance: Unqualified agreement to terms of offer communicated to offeror
  • Must mirror terms of offer without modification (mirror image rule)
• Consideration: Something of value exchanged between parties, can be promise, act, or forbearance
  • Must be bargained for and given in exchange for promise (e.g., payment for goods or services)
• Capacity: Legal ability to enter into contract, minors, mentally incapacitated individuals, and intoxicated persons may lack capacity
• Legality: Contract must be for legal purpose, contracts for illegal activities are void and unenforceable (e.g., contract for sale of illegal drugs)

Types of contracts

• Bilateral vs. Unilateral contracts
  • Bilateral: Both parties exchange promises to perform (e.g., employment contract)
  • Unilateral: One party makes promise in exchange for other party's performance (e.g., reward for finding lost pet)
• Express vs. Implied contracts
  • Express: Terms explicitly stated, either orally or in writing (e.g., signed lease agreement)
  • Implied: Terms inferred from conduct of parties or circumstances (e.g., implied warranty of merchantability)
• Valid vs. Void contracts
  • Valid: Contains all essential elements and is legally enforceable
  • Void: Lacks one or more essential elements or is illegal, not enforceable (e.g., contract with minor)
• Voidable contracts: Valid but can be rejected by one party due to certain circumstances
  • Examples include contracts entered into by minors or under duress (e.g., contract signed under threat of harm)
• Executory vs. Executed contracts
  • Executory: Performance by one or both parties still pending (e.g., contract for future delivery of goods)
  • Executed: Both parties have fulfilled their obligations under contract (e.g., completed sale of car)

Analysis of contract formation

1. Identify presence of offer by looking for clear, definite, and unambiguous promise or commitment
2. Determine if there was valid acceptance that was unqualified and mirrored terms of offer
3. Confirm existence of consideration by identifying bargained-for exchange of something of value
4. Assess capacity of parties to determine if both had legal ability to enter into contract
5. Evaluate legality of contract to ensure it is for legal purpose and does not violate public policy
6. Consider factors that may make contract voidable such as duress, undue influence, or misrepresentation (e.g., contract signed under false pretenses)