Contract (law)

A contract is an agreement, freely entered into, that represents reciprocal legal obligations between two or more parties and allows for legal recourse if the promises made in the agreement are breached. Contracts can be spoken and even implied, but most often they are written, to protect all of the signees and to give the involved parties a clear agenda of obligation and expectation of return. The expectation is that both parties are mentally competent and of sound mind, unimpaired by alcohol or drugs or any sort of physical liability that might compromise the voluntary nature of the enterprise and in turn negate the agreement.

The contract provides specific guidelines and clearly outlines the expectations for the duties to be performed by each party. Spelling out exactly the elements of the exchange creates the obligation in both parties to fulfill those expectations under a specified penalty. States, not the federal government, provide a wide range of statutory laws to enforce contracts. In addition, contracts carry the weight of centuries of what is known as common law or precedent to ensure a regulated system for civil behavior when it comes to agreements. Contracts, then, measure a society’s civility.

Background

Before the rise of the theory of the social contract during the height of the Enlightenment, with its implicit argument that society itself was constructed upon mutually agreed upon, voluntary consent, arrangements conducted between persons often reflected the might and authority of one party over the other rather than fairness and up-front arrangements. In rejecting a tradition in which exchanges of goods and services were not always spelled out and often were entered into involuntarily and carried out under the penalty of brute force, the framers of the American Constitution viewed the contract as the essential expression of a free society, in that both parties willingly entered into the agreement; both parties received something of value in exchange for something of value; and both parties expected that the other party would fulfill the expectation. A contract is a legally binding agreement; therefore, failure to live up to the agreement (what is known as a breach of contract) will involve the law in order to make a party honor the agreement or as a way to seek appropriate redress. As an element of contracts, the failure to meet the arrangement can be further litigated, as the courts provide a variety of circumstances that can excuse nonperformance.

Contracts are now an integral part of any society’s day-to-day functions—contracts are part of virtually every business negotiation, real estate and tenancy deal, medical treatment, employment arrangement, and human relationship arrangement, including marriage, adoption, and even funeral arrangements. One of the more challenging aspects of the twenty-first-century reliance on the Internet to arrange services and to provide goods is that it can potentially complicate the contract phase, as the parties may not meet in real time—thus creating potential headaches over the intended terms of the online arrangement if they are not communicated clearly. However, if terms are mutually agreed upon and accepted, even in the online format, this exchange is considered a binding contract.

Overview

Over the last century, contract law has become a major branch of jurisprudence. Legal experts who draft contracts typically devote a great deal of time to weighing every word of the agreement for its potential interpretation. The pressure placed upon ensuring that the terms are comprehensive and clear to avoid the prospect of confusion or loopholes represents a significant problem for those critics who see contracts as increasingly onerous: the simplest arrangement between two parties, for instance the purchase of a new car, requires the buyer to sign a stack of multi-page contracts, each one designed to cover different aspects of the purchase, guarantee appropriate compensation for services, and explicitly define lines of accountability in the event of a problem. The contract itself can become overwhelming, written in careful and specific language—sometimes at great length to cover all of the specifics of the arrangement in a kind of language, often termed "legalese," that is so elaborate that it is not entirely clear or comprehensible to an average person. Research conducted by banking foundations, medical facilities, and real estate brokers has shown that more and more people are willing to sign contracts without reading them, leading to misunderstandings, conflict, and, in some cases litigation as high as the Supreme Court.

Although contracts cover a wide variety of transactions, legal experts agree that whatever the arrangement, a binding and legal contract must have four foundational elements. First, there must be a specific and clear offer, an exchange of either a particular good or a particular service. Second, the offer must be acceptable to both parties; the provider must have the good or service specified in the contract, and the receiver must have a clear and stated intention to accept the good or service. Third, the contract specifies the rights of both parties to cover the period of the agreement—any specific right not itemized in the contract does not create obligation. This is why, in many cases, contracts for even the most basic agreements can be quite lengthy. Finally, a contract assumes what is known as adequate compensation, meaning that both parties will provide some level of benefit as part of the contract’s execution. If, for instance, a new employee signs a contract to cover their first year of work, the employee agrees to provide the specific service or skill the company requires and in return the company will provide a clear and reasonable set of remunerations and benefits to compensate the employee for their services for that time.

Bibliography

Barnett, Randy E. Contracts: Cases and Doctrines. 5th ed. New York: Wolters, 2012. Print.

Blum, Brian A. Contracts. 6th ed. New York: Wolters, 2013. Print.

Epstein, David G., Bruce A. Markell, and Lawrence Ponoroff. A Short and Happy Guide to Contracts. Thomson, 2012. Print.

Fox, Charles M. Working with Contracts: What Law School Doesn’t Teach You. 2nd ed. New York: Practicing Law Inst., 2008. Print.

Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince. Problems in Contract Law: Cases and Materials. 8th ed. New York: Wolters, 2016. Print.

Perillo, Joseph. Contracts. St. Paul: West Academic, 2014. Print.

Rohwer, Claude D., and Anthony M. Skrocki. Contracts in a Nutshell. St. Paul: West Academic, 2010. Print.

Stim, Richard. Contracts: The Essential Business Desk Reference. 2nd ed. Berkeley: NOLO, 2016. Print.