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What Constitutes a Contract?

What Constitutes a Contract?

November 15, 2018
By Bary Gassman

A legally enforceable contract is an agreement between two or more parties, either written or oral, that includes the transfer or promise to exchange something of value. This agreement is typically a promise from one party to do something for the other in exchange for some type of business. When one party fails to fulfill its duty in a legal contract, the other can seek recourse with the assistance of a commercial litigation attorney.

Five Elements of a Contract

A legally enforceable contract should contain five elements:

  1. Legal purpose. The obligations outlined in the contract must be legal for the contract to be enforceable by the court.
  2. Mutual agreement. All parties of the contract must mutually agree to all terms of the contract.
  3. Consideration. Each party in the contract must agree to provide something of value to receive a benefit, such as a promise to pay a contractor to perform work on a home.
  4. Competent parties. All parties in the contract must be of legal age, sound mind and not under the influence of drugs or alcohol.
  5. Genuine assent. All parties must enter freely into a contract and not be committing a fraud by entering the contract.

Some contracts, like a real estate sales contract, must be in writing to be legally enforceable. Most are bilateral, meaning that each party has made a guarantee to fulfill their part of the contract. An example would be where a homeowner signs a contract with a roofing company to install a new roof on his home. A unilateral contract is one where one party promises to fulfill their part of the contract in the future based on the other party’s actions. An example of a unilateral contract is a life insurance policy where the covered party pays a premium and the insurer promises to pay a future death benefit.

Remedies When a Contract is Breached

Failure to fulfill the terms of a contract constitutes a breach of contract. When one of the parties suffers a financial loss because the other has breached a contract, there are options for seeking compensation. These options may include suing for damages, compelling the contractor to complete the work required or terminating or amending the agreement in cases of fraud or signing contract under duress.

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