Validity of Contracts
Several requirements must be met for a contract to be valid and legally binding. The agreement must specifically define the terms under which the promisecan be considered fulfilled by both parties. In addition, the agreement mustprescribe remedies for conditions unfulfilled by one of the parties involved.The essential feature defining these requirements are: "capacity," "mutual assent," and "consideration."
Several requirements must be met for a contract to be valid and legally binding. The agreement must specifically define the terms under which the promisecan be considered fulfilled by both parties. In addition, the agreement mustprescribe remedies for conditions unfulfilled by one of the parties involved.The essential feature defining these requirements are: "capacity," "mutual assent," and "consideration."
Capacity
Fundamentally, two or more parties enter into a contract. A "party" may be anindividual, a group of people, or even an "artificial person" such as a corporation. The parties to a contract must have the legal capacity to enter intothat contract. Persons who are deemed incompetent due to physical or mentalillness lack capacity to enter into contracts. Minors, which in most states refers to persons under the age of 18, may enter into contracts. However, anycontract involving a minor is voidable. When a contract involving a minor goes unfulfilled it may be affirmed or disaffirmed when the minor reaches maturity, or legally becomes an adult. Parties to a contract also must have the legal right to do what the contract promises; for example, one cannot sell whatone does not own.
Fundamentally, two or more parties enter into a contract. A "party" may be anindividual, a group of people, or even an "artificial person" such as a corporation. The parties to a contract must have the legal capacity to enter intothat contract. Persons who are deemed incompetent due to physical or mentalillness lack capacity to enter into contracts. Minors, which in most states refers to persons under the age of 18, may enter into contracts. However, anycontract involving a minor is voidable. When a contract involving a minor goes unfulfilled it may be affirmed or disaffirmed when the minor reaches maturity, or legally becomes an adult. Parties to a contract also must have the legal right to do what the contract promises; for example, one cannot sell whatone does not own.
Mutual Assent
Traditionally, mutual assent has been described as a "meeting of the minds."This means that the parties involved in a contract must come to an agreementabout the particulars of the transaction. Mutual assent is demonstrated by "offer" and "acceptance."
An offer is made when someone proposes an exchange of some sort. "I will sellyou my guitar for $400" is an example of an offer. (Advertisements are usually not offers because they lack specific parties.) When the offer is accepted, the parties have mutually assented to enter into a contract.
Both offers and acceptances must be explicit in a contract. The statement "Imight sell you my guitar for $400" would be considered an intent to negotiaterather than an actual offer. "Sure, I'll give you $300 for it" or "Yes, if you include the case and some strings" would not be an acceptance because theterms "accepted" are not the terms originally offered; such a statement wouldbe deemed a counter-offer.
Traditionally, mutual assent has been described as a "meeting of the minds."This means that the parties involved in a contract must come to an agreementabout the particulars of the transaction. Mutual assent is demonstrated by "offer" and "acceptance."
An offer is made when someone proposes an exchange of some sort. "I will sellyou my guitar for $400" is an example of an offer. (Advertisements are usually not offers because they lack specific parties.) When the offer is accepted, the parties have mutually assented to enter into a contract.
Both offers and acceptances must be explicit in a contract. The statement "Imight sell you my guitar for $400" would be considered an intent to negotiaterather than an actual offer. "Sure, I'll give you $300 for it" or "Yes, if you include the case and some strings" would not be an acceptance because theterms "accepted" are not the terms originally offered; such a statement wouldbe deemed a counter-offer.
Consideration
Consideration must also be present for a legal contract to be formed. The essence of consideration is that a party receives some kind of benefit in returnfor his promise. Consideration may consist of money, goods, or a promise todo or not do something. The statement "I'll give you my guitar" is not a contract because the giver would receive no specified consideration in return.
When the mutual assent of legally capable parties<--which includes an offer and an acceptance, accompanied by consideration<--to a specific exchangeor set of promises occur, a valid contract has been formed.
Consideration must also be present for a legal contract to be formed. The essence of consideration is that a party receives some kind of benefit in returnfor his promise. Consideration may consist of money, goods, or a promise todo or not do something. The statement "I'll give you my guitar" is not a contract because the giver would receive no specified consideration in return.
When the mutual assent of legally capable parties<--which includes an offer and an acceptance, accompanied by consideration<--to a specific exchangeor set of promises occur, a valid contract has been formed.
Interpretation of Contracts
When interpreting contracts courts tend to avoid questions regarding the intent of the parties involved in the contract and rely on the contract itself, particularly when the contract is in written form. Under the "plain meaning" rule, the words of a contract are to be read according to their plain, everyday meanings, with the exception of terms that have been specifically defined in the contract. To discourage the drafting of deliberately ambiguous language, any ambiguous terms in a contract is interpreted in a way that penalizes the party that drafts the document. In other words, if "party X" deceptively drafts a contract with ambiguous language such that the terms of the contract benefit the interests of "party X" over "party Y," the ambiguous language of the contract will deliberately be interpreted to benefit "party Y."
Contracts are frequently modified to reflect a change in preference by one ofthe parties or because unforeseen circumstances arise. For instance, a person may contract with a builder to have a house constructed but during the course of construction he or she may desire that more rooms be included, or the builder may be forced to change the agreed-upon completion date due to problems with the weather. Both the initial contract and the subsequent modifications may be in written or oral form. Contracts can be designed to accommodate future complications by including provisions that leave matters open. For example, a contract may leave certain matters to be resolved at a later date to reflect future conditions such as changes in prices or availability of goods. Such modifications may be in writing but are more often simple oral agreements.
Interpreting contracts is often difficult because of the complexity and subjectivity of the agreement. To simplify the process a set of standard procedures for interpretation are usually followed. First, the latest and most final agreement of the parties is considered to be the valid contract. Second, written agreements are given much more weight than oral agreements. In fact, in cases involving written contracts, oral evidence that either contradicts or supplements a written agreement, may not be introduced if the written contract is deemed final and complete. Oral evidence may be considered when a contractis final but incomplete, but only as an addition to the contract; oral evidence in contradiction of the basic terms of the contract is not allowed.
When interpreting contracts courts tend to avoid questions regarding the intent of the parties involved in the contract and rely on the contract itself, particularly when the contract is in written form. Under the "plain meaning" rule, the words of a contract are to be read according to their plain, everyday meanings, with the exception of terms that have been specifically defined in the contract. To discourage the drafting of deliberately ambiguous language, any ambiguous terms in a contract is interpreted in a way that penalizes the party that drafts the document. In other words, if "party X" deceptively drafts a contract with ambiguous language such that the terms of the contract benefit the interests of "party X" over "party Y," the ambiguous language of the contract will deliberately be interpreted to benefit "party Y."
Contracts are frequently modified to reflect a change in preference by one ofthe parties or because unforeseen circumstances arise. For instance, a person may contract with a builder to have a house constructed but during the course of construction he or she may desire that more rooms be included, or the builder may be forced to change the agreed-upon completion date due to problems with the weather. Both the initial contract and the subsequent modifications may be in written or oral form. Contracts can be designed to accommodate future complications by including provisions that leave matters open. For example, a contract may leave certain matters to be resolved at a later date to reflect future conditions such as changes in prices or availability of goods. Such modifications may be in writing but are more often simple oral agreements.
Interpreting contracts is often difficult because of the complexity and subjectivity of the agreement. To simplify the process a set of standard procedures for interpretation are usually followed. First, the latest and most final agreement of the parties is considered to be the valid contract. Second, written agreements are given much more weight than oral agreements. In fact, in cases involving written contracts, oral evidence that either contradicts or supplements a written agreement, may not be introduced if the written contract is deemed final and complete. Oral evidence may be considered when a contractis final but incomplete, but only as an addition to the contract; oral evidence in contradiction of the basic terms of the contract is not allowed.
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