An agreement is the second essential step in creating a contract. An agreement represents the acceptance of an offer made by another party. When an agreement is reached, it means that the two parties to a contract have agreed to terms and have decided to become bound to perform the actions in the contract.

In the past, this agreement was known as a “meeting of the minds,” but this has fallen out of favor in court rulings over the last century. Instead, an agreement in a formal contract is now recognized by the signing of a contract. In an informal contract, which is a contract when signatures are not exchanged, acceptance is demonstrated by the actions of the two parties. In a bilateral contract, agreement occurs when the two parties accept the obligations placed on them. When a unilateral contract is in effect, agreement occurs when the offeree completes the action requested by the offeror. 

The “meeting of the minds” as a standard for recognizing agreement has fallen out of favor due to the recognition that a court cannot assume to know what is within the mind of any individual. As a result, the court cannot possibly interpret the intentions of any party to a contract at the time they enter into the contract. The standard that the courts have adopted instead is a reasonable person test. The reasonable person test is designed to guard against any agreement which would be detrimental to the person agreeing to the contract.

In order to accurately understand the concept of agreement, it is crucial to understand when a valid offer has been made. An offer is made when a party, known as the offeror, presents terms of a contract to another party. The party that receives the offer is known as the offeree. If the offeree accepts the offer, the two parties are considered to be in agreement. 

In contrast are offers of “invitations to treat.” Invitations to treat are not offers. Invitations to treat can happen in a number of ways. Some of the most common include the display of goods in a store window, an auction without reserve, the solicitation of competitive bids, or advertisements for goods.

Except in specific circumstances, an auction does not constitute a legally binding offer and agreement process. An auction can be held with or without reserve. An auction without reserve is the rarer of the two kinds. An auction without reserve means that the item will automatically be sold to the highest bidder regardless of the price. An auction with reserve, or reserve auction, is an auction in which the person putting the item up for auction has stated a price below which they are unwilling to part with the item, or circumstances under which they “reserve” the right to not complete the exchange of goods.

Auctions present interesting situations when considering offers and agreements. In an auction without reserve, the person placing the goods up for auction is obligated to accept the final bid. Each bid during the auction represents a new offer. Each higher bid that the auctioneer accepts means that the offer represented by the previous bid is invalidated. During a reserve auction this can create some complications.

If the person placing the goods up for auction decides against accepting the highest bid, they are left without an alternative. Even if the person would rather accept the second highest bid represented, they are unable to do so because the higher bid caused the previous bid to become voidable.

Advertisements are not considered to be offers because they may oblige the person creating the advertisement to sell more goods than they possess. As a result, an agreement cannot be reached as the result of an individual responding to an advertisement. Advertisements are technically considered “invitations to treat.” However, there are circumstances in which an advertisement can constitute an offer. 

The Nineteenth Century case of Carlill v. Carbolic Smoke Ball Company in England involved a promise by Carbolic Smoke Ball Company to pay £100 to anyone who used their product but still developed influenza, which their product was claimed to prevent. As guarantee of their claim, the advertisement said that the company had deposited £1000 in an account to pay anyone who caught the flu.

The advertisement was considered to be a unilateral contract. The agreement by Louisa Carlill was twofold. The first part of the agreement can be seen in her purchase of the smoke ball, and the second element of agreement was her continued use of the ball. 

The English Court of Appeals ruled that the advertisement became a legally binding contract on several grounds. The most relevant part of the ruling was that while an offer existed between the company and the entire world, a contract only existed with those individuals who had taken the actions to accept the terms of the offer. Acceptance in this case is interchangeable with agreement. This case also cemented the idea that conduct was sufficient to convey agreement with the terms of the advertisement’s offer.

Agreements to agree are not considered legally binding. These legal documents only reveal that the concerned parties are considering a future contract. In and of themselves an agreement to agree does not mandate action on the part of either party. Agreements to agree arise when two parties are discussing an event involving future transactions which are still in progress. A statement of future intent is not a legally binding contract. It only indicates an agreement by the two parties involved in the negotiation to attempt to form a future contract. An agreement to agree is not binding if the matter under discussion is still in dispute. 

An agreement to agree may be considered a contract, however, if the material terms of agreement are present. Agreements to agree can become legally binding agreements if they contain all the typical elements of a contract. If, however, an agreement to agree merely records the terms that have been discussed in preliminary negotiations, or they can be given the full weight of a contract to which both parties have agreed. Agreements to agree are sometimes known as letters of intent. Whether the document is titled an agreement to agree or a letter of intent, the legal significance of the terms is equal.

In order for agreement to occur, the offeree must have an intention to enter into the contract. Intention can be interpreted by action or by verbal acceptance of the terms provided by the offeror. Intention also extends to the offeror. The offeror’s intentions are rarely subject to question.

Intention to form a contract is one of the requirements to form a contract. Intention to be legally bound by a contract does not exist during the initial negotiation of a contract. Courts generally do not assign intention to either party by their interpretation of the parties’ statements of future intent or by agreements to agree.

There are several circumstances under which an agreement or an offer may be rescinded. The first way to rescind an offer is to attempt to change the offer. Any attempt to change an offer is known as a counter-offer. If a counter-offer is presented and subsequently rejected, the execution of the original offer cannot be compelled by a court of law. Unless the counter-offer contains a provision specifically authorizing it, any previous offer becomes invalidated. 

Contract negotiations are often lengthy processes. If during the negotiations one of the parties discovers that the information being discussed in the negotiations is substantively different than has been presented during the negotiation process but fails to disclose this information, it may serve as grounds to invalidate the other party’s agreement. If, however, the information in dispute is an expression of opinion, it may be found to be false without invalidating the contract negotiations. Expressions of opinion are not given equal weight to other elements of preliminary negotiations.

Option contracts are contracts in which the offeror, or promisor, is limited in their ability to withdraw or rescind a contract. An option contract is an important element of a unilateral contract. Traditionally a unilateral contract is only formed when the action under consideration is completed. This is an issue because it provides no protection to an offeree who has completed the partial performance of the contracted action before the offeror withdraws the contract under discussion. 

An option contract transforms an unilateral contract into a bilateral one because it provides some guarantee to any party providing agreement to the contract that their actions will receive compensation. The compensation may begin immediately after the action has begun, or may only come into effect once a significant portion of the work is completed. 

The party which has engaged an action leading to the partial performance of the contract may be able to claim detrimental reliance upon the belief that the offeror would provide payment. For instance, Mike hired Steve to paint the walls and ceiling of his room for $100. Mike told Steve to leave after Steve had finished painting the four walls, and was in the middle of painting the ceiling.

Under a traditional unilateral contract, Steve would not be entitled to any of the $100 because the money was provided as consideration for the completion of the task. Steve, however, could compel Mike through promissory estoppel to compensate him for the partial performance of the task. Steve undertook the actions under a detrimental reliance that Mike would allow him to complete to task.

Option contracts are related to the ideas of promissory estoppel and detrimental reliance. In contract law, promissory estoppel and detrimental reliance apply if the actions a party has undertaken by the offeree while under contract would be unfairly detrimental to the interests of the offerree and would unjustly enrich the offeror. As a general legal principle, estoppel is meant to halt any action which would be unfair to the interests of one party in comparison to another. 

As in the above example, detrimental reliance comes into effect in instances of partial performance of unilateral contracts because the party fulfilling the actions which complete an unilateral contract have a detrimental reliance upon the party offering the contract to adhere to the terms of the contract. Promissory estoppel applies because it seeks to “estop,” or halt, the offeror from withdrawing their promise of consideration.

Option contracts are usually found in real estate. Real estate option contracts exist primarily for the benefit of the buyer. The buyer in a real estate option contract is allowed time to secure financing, to arrange for a contractor to examine the land, and to investigate relevant zoning laws governing the property. Real estate option contracts do not oblige the buyer to grant agreement to the seller’s offer. Agreement in real estate contracts can be withheld by a buyer looking to make money off the land. Real estate option contracts often have a short period of time before the terms laid out in the contract lapse.

There are several ways in which an irrevocable offer can be terminated. The first way to terminate an irrevocable offer is for the offerree to reject the offer, either by denying it or by presenting a counter-offer. The second way is for a period of time laid out in the original offer to expire. If the offer states that it must be accepted by a certain time, but it is not, then the offer to provide agreement to the contract is considered terminated. 

An irrevocable offer, or any other offer for that matter, can also become unenforceable in several other circumstances. If the party who offered the contract dies or becomes legally barred from entering into a contract, such as due to any form of disability, then the contract cannot be agreed to or accepted.

If the person who has agreed to the contract also dies or becomes incapable of entering a contract, then the contract may also be declared unenforceable. If the contract subject to agreement is related to an illegal act, then it is considered void. If the item under discussion in contract negotiations is destroyed, then it is obviously impossible for an agreement to be submitted in response to an offer.

Acceptance of the contract can happen in several ways. The most fundamental is that the acceptance must be unequivocal. There can be no hesitation present in the acceptance of the terms laid out in the offer. If there is any objection to the terms laid out in the offer, then full acceptance has not occurred. Any changes proposed to a contract, as mentioned above, represent a counter-offer and an invalidation of the original offer. 

Communication of acceptance is not required in an unilateral contract. The acceptance of an unilateral contract occurs through action. Silence can almost never be considered a condition constituting acceptance of a contract. Even if the offeror tells the offeree “by silence you accept”, it is generally not considered legally binding. 

The only exceptions under which silence can be considered acceptance are if the offeree watches the performance of an action by an individual who would have a reasonable expectation of compensation for the action and does not stop the action. This is considered an acceptance by silence because they failed to reject the offer. If there is a history of contractual relations between the two parties if the offeree does not comment on a preferred contract, their silent acceptance may be inferred from past history. 

The offer may lay out the terms of acceptance, such as requiring that acceptance be faxed or mailed to the offeror. These are acceptable restrictions that can be placed on conditions of acceptance and are not considered to place an unreasonable burden upon the offeree.

Contract law is based in three different areas. The first, and rarer, basis for contract law is a specific statute governing a contract. The second area is the Uniform Commercial Code. The more pervasive foundation of contract law is common law. Common law is not written down or codified in any particular place. Common law is instead the tradition of law in a particular jurisdiction.

Common law as it reflects on contract law is influenced by the findings of British common law in effect at the time of the American Revolution in 1775. The common law decisions that have been handed down by individual states since British common law ceased to be the governing principle of the location and any relevant finding by a Federal judge.

Common law is a general term for any legal precedent that is taken from a judge’s individual ruling. The main statute which provides the foundation of English common law is based on the interpretation of the 1677 Statute of Frauds. It has been incorporated into the common law heritage of all fifty states in the United States at some point.

The main concern in a common law system regarding contracts is if one party is allowed to sue another person. Contract law in a common law system calls this idea the concept of privity of contract. In contract law, privity answers the question of whether an individual party has the legal standing to sue another party, as well as what the responsibility is of the party being sued. Privity in contract law says that rights cannot be extended to an individual who has not entered into the contract in question, and that a third party not involved in the contract has no liability for the terms of the contract.

Privity is a complicated but essential aspect in contract law in common law systems. The 1968 English case of Beswick v. Beswick examines the complications when two parties enter into a contract to provide for the welfare of a third party. The elderly Mr. Beswick and his nephew created a contract in which Mr. Beswick sold his company to his nephew. One of the terms of the contract was that Mr. Beswick’s would-be widow, Mrs. Beswick, be provided with stipend after Mr. Beswick’s death.

The nephew agreed to the contract, but after the death of his uncle declined to provide the stipend. The nephew claimed he was under no obligation to provide the stipend because his aunt had not been involved in the original contract. The court in this case upheld the nephew’s contention. However, because Mrs. Beswick was the administrix of his estate, and thus a party to the contract because the estate maintained an interest in the contract he was still compelled to uphold the terms of the contract.

Outside of circumstances such as that in Beswick v. Beswick where the third party assumes the interests in one of the original parties, the only other time a third party can become directly involved in a contract under the concept of privity inherent in a common law system is when one of the original parties to the contract has been acting on behalf of the third party from the beginning.

For instance, John is working for Joe. Joe and Jack enter into a contract. John would then be able to compel Jack to fulfill the contract because the duties in a contract can be transferred. If Joe were not working for John, John would be unable to force Jack to complete the contract.

Contract pacta sunt servanda, which translates to “agreements are to be kept.” The essential contract law basis is that contracts cannot violate the rights of either party to the contract.

The main contract law basis is to ensure that the contracts that parties enter into are honored by both parties. Contract law defines any agreement between two parties in which one agrees to provide something to another party in exchange for goods, services, or financial compensation as a contract.

Contract law defines most contracts as being made orally. One of the less understood or appreciated contract law basics is the idea that a purchase in a store for anything, ranging from a pack of gum to a high definition television, represents an oral contract. Contract law only prevents parties from entering into contracts that are trifling, indeterminate, or illegal.

Contract law forms the basis of nearly all commercial interactions in modern society. Although many people do not realize it, they enter into several contracts each day.

Contracts include the obvious examples, such as leases, rental agreements, employment contracts, and real estate sales, but also include the purchase of a soda from the neighborhood convenience store. It would be very difficult to imagine a modern society that was not dominated by contracts in the way that the United States and much of the world is currently.

Contract law takes its basis from the Latin phrase pacta sunt servanda, which means “agreements are to be kept.” The understanding of contract law that is held in the United States is based on the British common law system and has been modified by the Uniform Commercial Code.

 

Contract law places obligations on all parties that enter into contracts which are mutually binding. In most circumstances, these contracts cannot be broken without the breaking party being required to provide compensation to the other party. To learn more about the history of contract law, please read this link.

Contract law is based on a common law heritage inherited by America from Great Britain. Under the common law system, the laws governing contracts were not codified as they are today. Instead, the governance of contracts was based on previous rulings by the justices. Contract law is based in both the common law and equity court systems of England.

 

As a result, American contract law is concerned both with ensuring that contracts are enforced when the fairest course of action is to enforce the contract, but when it would place an unreasonable burden on one of the parties, the courts often abridge contracts. The preference of non-interference in contractual relationships is found in the Contract Clause of the Constitution.

The UCC, or Uniform Commercial Code, is a national attempt to streamline the laws governing commerce across the United States. It consists of 11 Articles. Ten of these Articles have been adopted in every State. Louisiana is the only State that has not adopted every Article.

Although the UCC is not the specific law in any jurisdiction, it does provide the basis for each State’s commercial laws. Each State adjusts the organization of the Code to adhere to its particular tradition, but the essential elements remain the same from State to State. For more information on the UCC, please click the link.

Contract law exists to record the obligations each party to a contract has to the other party. Contracts also are meant to protect the rights of both parties to the contract. In addition to laying out the responsibilities of the contracted parties, contract laws also assign each party with rights. Contract laws also lay out penalties in the event a contractual obligation is not upheld. To learn more about the fundamentals of contract law, please click the link.

The objective theory of contracts states that contracts will only be enforceable if a reasonable observer watching contractual negotiations would believe the terms being laid out are fair.

This is an essential element of contract law because it serves a court examining a contract with a reasonable baseline against which to compare the terms of a contract. It allows an advertisement of ridiculous terms to not be considered a serious invitation to treat. For a more thorough examination of the theory please follow the link.

There are five common elements that must be present to form a legally enforceable contract. These elements are agreement (which constitutes offer and acceptance), consideration, the intention to be bound by the contract, the legal capacity to enter into a contract, and the formalization of the contract. It is also essential that the contract be for a legal purpose. For a more thorough examination of these aspects, click the link.

There are six different types of contract. These contract types constitute three different categories. There are bilateral and unilateral contracts. Formal and informal contracts form the next classification. The final category of contracts is express contracts and implied-in-fact contracts. Each type of contract can best be explained by following the comparisons found here.

When attempting to enforce a contract, the courts divide contracts into two broad categories of contracts. Valid contracts include enforceable contracts, voidable contracts, and unenforceable contracts. If a contract is not valid, it is considered a void contract.

A quasi-contract may be formed either through a statute that imposes contractual obligations between two parties or affords protections to circumstances that the Government finds needs the protection. For a more thorough examination of the ways in which contracts are enforced, follow the link.

When charged with interpreting contracts, the courts will usually attempt to interpret them in a manner that most clearly adheres to the original intentions of the parties at the time the contracts were formed. If the intentions of the contracting parties cannot be determined, the courts will attempt to base their interpretation on the fairest interpretation of the terms. 

In the event that evidence suggests that the party which drafted the terms of the contract left the wording intentionally vague, the courts will interpret the contract in a way most beneficial to the party which did not draft the contract. For an analysis of how the courts typically imbue meaning to the contracts before them, follow the link.

The legality of a contract can be attacked from several fronts by a litigant. A litigant may argue that a contract should be invalidated because it is a contract contrary to statute. A litigant may also claim that a contract they have entered into should be declared void or voidable because it is contrary to public policy.

At any point when a contract is before the court, the court can declare that a contract is illegal because it has been formed in order to engage in the commission an illegal act. If only a specific clause causes the contract to be illegal, and the clause can be stricken without fundamentally changing the contract, then the courts may enforce an existing severable clause or create one if it does not already exist.

The legality of a contract may also be disputed if a litigant claims that their assent was not genuine. There are several reasons that the courts may hold this to be an acceptable reason to rescind a contracts standing as valid. To examine the legal challenges that may be filed against a contract, please see the link.

There are six types of contracts, which can be broken down into three pairs of related terms. The first pair is bilateral and unilateral contracts. Bilateral and unilateral contracts are distinguished by the relationships between the offeror and offeree.

 

 

In a bilateral contract, both parties must agree to the terms of the contract before it goes into effect. In a unilateral contract, the offeror presents terms to the general public. A unilateral contract only becomes binding once a second party seeks to collect on the contract. A unilateral contract is formed if Megan puts up a poster offering a reward for her lost wallet, while a bilateral contract would be formed if Megan offered Rosemary $50 to find her wallet.

 

 

Although formal and informal contracts were both once common, informal contracts have largely replaced formal contracts. A formal contract is any contract which is required by law to take a specific form. An informal contract is any other type of contract.

 

 

An express contract is formed when both parties state what they intend to do while the contract is being formed. An implied-in-fact contract is formed by the actions of the parties. An implied contract does not require any verbal statement by the parties to be put into eff

The courts can become involved in enforcing contracts in the event there is a dispute between the parties in a contract. The courts may establish that a contract is enforceable, voidable, unenforceable, or void. The court may also rule that a quasi-contract is in effect. Enforceable contracts, voidable contracts, and unenforceable contracts are all considered examples of valid contracts.

When issuing a judgment, a court may declare a contract void or valid, and may declare the ruling to apply to the contract as a whole or to just a part of the contract. If only a portion is declared void, and the remainder of the contract can still be considered valid, the contract will remain in effect.

If the court rules that the contract is enforceable, it means that the two parties are bound by the terms of the contract to which they had previously agreed. An enforceable contract is a category of a valid contract. Enforceable contracts compel action on behalf of both parties.

A voidable contract is a specific category of enforceable contract. A voidable contract exists when one or both of the parties has the ability to release itself from the contract without a finding of fault. A voidable clause can be specifically inserted during the drafting of a contract by either party.

Any contract involving a minor is automatically considered a voidable contract. A minor may terminate the contract within two year of reaching the age of majority. In a voidable contract only the party with the right to void the contract may file suit for breach of contract.

An unenforceable is a valid contract which a legal body cannot compel one or both of the parties to fulfill the terms of because there is a statute or public policy with which the contract is in conflict.

A void contract is an oxymoron. A contract that is void is a contract which could not exist in the first place. A contract may be declared void by the courts in several circumstances. If one of the parties has been adjudicated to be incompetent, the contract may be declared void. A contract undertaken to commit an illegal act will be declared void as well.

Quasi-contracts are instances where two parties never specifically entered into a contract for the service in question, but a law creates an obligation for one party to provide compensation to another for services rendered.

Contract law has been construed historically that if ambiguous language is employed, then the contract will be interpreted in such a way as to give favor to the party that signed the contract, not the party that wrote the contract. Contracts law is derived from a common law heritage. 

Another major function of a contract is to document what each party to a contract is obligated to do for the other. Contract laws also serve to assign consequences in the event either party is unable to perform the duties taken up under the terms laid out in the original contract.

Contracts law is also meant to uphold the basic processes by which the economy functions in the United States and in all countries throughout the world, though not every country has a common law basis for understanding contract law.

Contract law in other systems may have a heritage derived from civil law, Islamic law, socialist law, and/or from tribal law. Depending on each country’s specific views of contracts, law systems in the country may assign more protection to the consumer or may afford more protection to the corporation.

One of the essential tenets of business contract law is that the terms of the contract must be one to which a When interpreting a contract there are several things that an arbiter or jury must examine. The first is to determine the intention of the parties to the contract. There are many ways to do so including the plain-meaning-rule.

When determining intent, the judgment must conform itself to the intent of the parties and must be alert to times when the parties’ intents deviate from the what would normally be expected. An interpretation must also seek to not reward fraudulent intentions which may have been held by a party to the contract.

Reasonable outside observer would adhere. The law of contract prohibits the enforcement of contracts that appear to be too good to be true. Business contract law serves to prevent outrageous claims from being enforced. This interpretation of the law of contracts is known as the Objective Theory of Contracts.

The Objective Theory prevents the interpretations of any law of contract from enforcing ridiculously out-sized claims in advertisements as the offer of a contract. The most famous example of this in business contract law is the Pepsi Harrier Jet case. In a 1995 TV commercial Pepsi offered a Harrier jet as a reward for its Pepsi points customer give away. 

The ad said that the jet could be obtained for 7 million points. While the main method of obtaining Pepsi points was to drink Pepsi brand soda and redeem points from bottle caps, the company also allowed points to be purchased for ten cents each. John Leonard thought he saw a brilliant business opportunity.

The normal cost to obtain a Harrier jet was in excess of $23 million dollars. If Leonard bought all the points he would have needed to redeem for the jet it would cost him just $700,000. After raising money from friends and family, Leonard bought 7 million Pepsi points. 

Attempting to enforce what he thought was a valid law of contract, he sent the 7 million points he had purchased, as well as 15 Points he had obtained from other means, and an order form on which he demanded that Pepsi supply him with a Harrier jet.

In response, the company wrote him a letter giving him free coupons and a letter which claimed that business contract law did not oblige the company to provide the jet because it was obviously an outlandish claim, meant to be humorous and entertaining. Leonard took Pepsi to court, claiming that the advertisement of a Harrier jet for the 7 million Pepsi points he had purchased was a valid offer. 

Leonard said that when Pepsi did not reward him with the jet it had violated the law of contract. He claimed that by mailing in the points he had accepted their offer, the 7 million points were his consideration, and that the jet constituted Pepsi’s consideration. 

In rejecting Leonard’s claim, the judge laid out the Objective Theory of Contracts succinctly. The judge ruled that business contract law had not been violated because “no objective person” could have believed in good faith that the offer was serious. 

Due to the outrageous nature of the advertisement, the law of contract was determined to not have been violated. Business contract law is bound by a reasonable person test, that is, would a reasonable person examining the contract determine that the terms of the contract were realistic.

In order to form a contract, five distinct aspects must be present. The first is that there must be consideration. The offer and acceptance of contracts is often referred to as an agreement.

Consideration in a contract does not apply if the contracted act is something legal prohibited. For instance, a contract cannot be entered into if the consideration of one of the parties is to kill another person, because the killing of another person is not normally a legal right.  

Contracts can only be enforced legally if the parties involved in them are believed to have wanted the courts to become involved in them at the time the contract was created. Two parties who claim they are entering a “gentleman’s agreement” are usually not considered to have entered into a contract.    

A contract cannot be considered to be valid unless both parties to the contract have the legal capacity to enter into the contract. Legal capacity has several elements. The first is that both parties must be of sufficient age to be considered above the age of majority. While a minor may become a party to a contract, they can disaffirm any contracts they enter into at any time. In the event a minor party to a contract disaffirms the contract, the minor must forfeit any goods they received. 

Recently, minors voiding contracts have been held responsible for returning the items covered in the contract in the same State they were granted, as are adults. Of course, the minor is only responsible for returning the consideration if it is currently in their possession.

The final requirement to creating a contract is that there must be a formality to inform both parties that the contract is in effect. The formality, however, is not standardized. It may involve affixing signatures to a written contract or shaking hands to formalize a verbal contract.