BUSINESS LAW Introduction to Contracts

I. Elements of a Contract
The concept of a contract is much broader than what you previously might have thought before
enrolling into this course. When we think of a contract, often the first thing that comes to
mind is a formal document, written by a lawyer. This certainly qualifies as one type of contract.
But in fact, many other types of contracts exist that dont fit this mold. Moreover, we enter into
contracts every day and probably arent aware of every time we are doing so. When we buy
milk from a supermarket, we enter into a contract. When we work for pay, we are in a
contractual relationship (i.e., if someone doesnt pay you for time worked, you would sue in
court under a breach of contract claim).
A. The following are the elements of a contract; each element will be explored in much
greater detail throughout the subsequent chapters.
1. OFFER: A contract begins with an offer. An offer is a proposal made by one party to
another indicating a willingness to enter into a contract. The person who makes the offer
is the offeror.
2. ACCEPTANCE: The offeree accepts the offer and agrees to be bound by the terms
found in the offer.
3. CONSIDERATION: In order to legally enforce an agreement, sufficient consideration
must be present. Consideration is defined as the exchange of benefits and sacrifices by
the parties. What this means is that both sides must be exchanging something of value in
order for a legally binding contract to exist. It is this exchange of valued items or
services that binds the parties together.
a. (Consideration example) Suppose you and I make a deal. I promise to give you
$1,000 (period). Thats it. You say, I accept your offer to give me $1,000. We
have offer, and acceptance. Do we have a legally enforceable contract? Will a
court make me pay you $1,000 if I offer to pay you $1,000 and you accept that
offer? The answer is no, absent some other facts that might change the
circumstances, a court will not enforce this promise. The reason is that the
consideration is not legally sufficient. I am promising to give you something of
value, buy you are not promising to give me anything in return. A court will call
the agreement a promise to make a gift.
b. If I offer to pay you $1,000 if you would play piano for me only Monday night for
my party from 10:00-2:00am, and you accept this offer, then we would have a
legally enforceable contract because we are both exchangingor promising to
exchange (technically the promises are all you need)something of value. This
is what consideration means. There must be something of value given up on both
sides.

4. CONTRACTUAL CAPACITY: Both parties entering the contract must have the
capacity to do so; for example, the law says that minors do not have the capacity to enter
into contracts.
5. MUTUAL ASSENT: This is sometimes called meeting of the minds, which means
that both parties know what the terms of the agreement are and have freely agreed to be
bound by those terms.
6. LEGALITY: Parties cannot be allowed to enforce a contract that involves doing
something that is illegal. The classic example is an agreement to commit a crime or a
tort. But as we will see, some agreements that involve neither crimes nor torts have been
made illegal by specific laws.
7. FORM: Our general rule is that contracts do not have to be in writing in order to be
legally enforceable. However, the law requires that some contracts be in writing in order
to be legally enforceable. This rule is known as the Statute of Frauds.