FREE ESSAY ON CONTRACT DEFINITION PAPER

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 (West's 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. It's 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 one's 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 don't 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
Ryan's 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 Ryan's car again and Ryan agreed because
he was under the influence of alcohol. Due to Ryan's 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 A's 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 didn't give it to Billy and kept the $50, Bob couldn't be bound to the
contract. Even if Billy gave Bob $50 to steal the necklace and Bob didn't 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.