The term “contract” covers a wide array of topics. This legal term is usually used in business law. Contract is generally defined as a “promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some ways recognizes as a duty” (Restatement (Second) of the Law of Contracts § 1). Hence, when a person sues someone for breach of contract, it only means that the defendant fails to fulfill his promise to the plaintiff (Maggs 1). If this happens, there are two options that the court may ask to the defendant – pay the plaintiff or abide with the promise. The consensus theory of contract asserts that the contract “is the product of the consensus or “meeting of the minds” of contracting parties” (Hamburger 241). Hence, when there is no consensus, no contract will be made. This is supported by Mootz (2011), where he claimed that the formation of contracts generally requires the agreement of the two parties’ minds (Mootz 1).
A promise is enforceable by the law if it comprised the two bases to be considered legally recognized – reliance and consideration. Reliance is deemed as “an alternative basis for enforcing promises” (Maggs 13). On the other hand, consideration is defined “for a promise as something – a performance or another promise – given in exchange for the promise as a part of a bargain” (Maggs 13). There are basically four requirements that characterize a consideration: there should be a return promise or performance bargained; the return promise or performance is agreed due to the promisor’s request in exchange for the promisee’s request; performance may be in the form of forbearance, act, or destruction, modification, creation of legal relation; and the return promise or performance may be granted to another person or to the same promisor and may be granted by another person or the same promisee. Given these characteristics, consideration is often referred as “the bargain theory of consideration”.
According to Rosenberg (2013), the idea of modern contract law emerged during the Victorian era. On the other hand, Fried believed that it started with David Hume’s proposition of the foundation of justice and law, which composed of property, person, and contract (Fried 1). Thus, it is not astonishing to observe that most politics and constitutional law used this foundation as a basis of crafting laws. For instance, tort law is ratified to protect violations against a person; in the same way law of property is crafted to protect rightful possessions. On the other hand, contract law is made to facilitate “our disposing of these rights on terms that seem best to us” (Fried 2). Most people perceive contract law as a biding law for other existing laws. Hence, believed that in light of showing that “contract law to be more than an ensemble of isolated legal rules pertaining to the enforcement of agreement, a “cohesion” approach illuminates how rules hang (or fall) together, their common presuppositions as well as their tensions” (Bagchi 1228).
Requirements for Contracts to be Legally Enforceable
The contract may be in the form of written or oral. A breach of contract may lead to remedial duty (Bagchi 1238). The contract is composed of elements, which makes it legally enforceable. These are offer, acceptance, legal objective or purpose, mutuality of obligation, consideration, and competent parties.
According to Restatement (Second) of Contracts §24 (1981) offer pertains to the “willingness to enter into a bargain so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it”; whereas, acceptance is defined as “a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer” (Restatement (Second) of Contracts §50, 1981). It must be noted that offer may come in a myriad of forms. Further, in the process of accepting the offer, the terms should not be changed. The next element is a legal purpose, which stipulates that all offers should not be illegal (e.g. drugs, human trafficking). Mutuality of obligation is sometimes referred as the meeting of the minds. This element assures that both parties should assent the contract. All terms in the contract should be agreed by all persons involved. The element of consideration pertains to the bargain in the contract, which often consists of a detriment when the promise is not meet and benefit when it is. The last element involves the competent parties who will engage into a contract. Therefore, the court may find person lacking mental capacity or children not qualified of making a contract.
The principle of pactasuntservanda (a Latin term which means that the agreements and stipulations of the parties to a contract must be observed). The freedom of contract is implied upon the request of contractual resolution which means any part that is the making of private negotiation should be strictly imposed. Contract law will deliver assistance only when the agreement is a creation of a method that is not within the private negotiating standard. The private bargaining paradigm is premised on the belief that an agreement signifies the common agreement of the parties. Contract law’s canceling policies of fraud and mistake and have been used when it seems that the contract was not a creation. However, a contract can be revoked any time if the offeree accepts the request: “An offeree’s power of acceptance is terminated when the offeree receives from the offer or a manifestation of an intention not to enter into the proposed contract” (Restatement (Second) of the Law of Contract 42).
Further, the law allows the persons to accept or reject offers before entering into a contract; thus, when rejection happens, the offer in the contract lapses. On the contrary, a person may express his/her acceptance to the offer through conduct or statement. It must be noted that inactivity or silence does not account to acceptance
Issues Affecting the Performance of Contracts
Statute of Frauds
It has been mentioned earlier that oral promises are considered valid or enforceable even if it was not recorded or written in a document. However, there are some exceptions and this law is called as the statute of frauds – “all state legislatures have passed statutes that make certain kinds of promises unenforceable unless they are evidenced by a writing signed by the person who made the promise” (Maggs 29). This law is primarily enacted for evidential reasons because there is a possibility that the defendant did not make a promise contrary to the plaintiff’s complaint. This law aimed to prevent this type of fraud.
Promissory estoppels is designed in “certain situations where a party to a contract promises something which is at variance with the original terms of contract and where the other party to the contract alters his/her behavior in reliance of that promise” (Weitzenbock 1). There are basically two effects when promissory estoppel is applied: restricting the individual’s capability to go back on assumption or belief that they persuaded in another individual; the promissory estoppels can allow some promises binding despite the fact that these were not originally included in the contract.
Resolution and Remedy
The principle of American contract law states that “if the defendant breaches the contract, the defendant should have to pay the plaintiff a sum of money calculated to put the plaintiff in the same position that the plaintiff would have been in if the defendant had not breached the contract” (Maggs 118). This is to cover the loss suffered by the aggrieved party. The American contract law supports the following measures in calculating the damages, which include the value lost by the aggrieved party as a result of the deficiency or failure of the performance and consequential and incidental losses. However, there is a limitation on covering the damage/s for the aggrieved party. American law may not seek recovery from the defendant “for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made” (Restatement (Second) of the Law of Contracts § 351). Further, when the plaintiff could have evaded humiliation or burden, the law may not require the defendant to cover the damage.
Bagchi, A. The Perspective of Law on Contract. Washington Law Review 88: 1277-1249, 2013. Print.
Fried, C. Contract As Promise: A Theory of Contractual Obligation. Harvard University Press, 1981. Print.
Hamburger, P. The Development of the 19th Century Consensus Theory of Contract. Law and History Review: 243-328, 1989. Print.
Maggs, G. Comparative Contract Law: American and European. Augsburg Summer Program in European and International Economic Law, Web.
Mootz, F. Principles of American Contract Law. University of Nevada Press, 2011. Print.
Rosenberg, A. Contract’s Meaning and the Histories of Classical Contract Law. McGill Law Journal 59 (1): 165-207, 2013. Print.
Weitzenbock, E. English Law of Contract: Promissory Estoppel. Universitetet Oslo, 2012. Print.