Frequently Asked Questions about Contracts
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Frequently Asked Questions about Contracts
Q: What is an offer and when can an offer be withdrawn?
A: An offer is the first step in forming a contract. An offer can be any action that creates a reasonable expectation in the offeree that the offeror is willing to be bound by the terms proposed. As long as nothing has been paid or given up to hold an offer open, the offeror can withdraw or retract the offer at any time before its acceptance by the offeree.
Q: Once there is an offer how is a contract finalized?
A: In simple terms, the second and final major step in forming a binding contract is acceptance of the offer. The parties must have a meeting of the minds about all the material terms of the contract. An acceptance may be express or, in some circumstances, by reasonable implication. If the accepting party does not agree to all the terms offered, he or she may make a counteroffer.
Q: What is consideration?
A: Consideration is required for a contract to be binding. For an agreement to be enforceable, there must be bargaining for something of value. The value can be a tangible thing or an intangible advantage. To get something of value, the party to a contract gives up something to his or her detriment. The underlying value upon which the contract is based is called consideration.
Q: What is a breach of contract?
A: A breach of contract occurs when a party to the contract fails to perform its specified duty under the contract. It can be a violation of any of the terms or conditions of the contract, as long as there is no legal excuse for the violation. Following a breach, the nonbreaching party can usually seek some sort of legal or equitable remedy.
Q: How are damages calculated for the breach of a contract?
A: Damages largely depend on the type of breach. If the wronged party has not sustained provable damages, there is generally only a claim for nominal damages. If damages are provable, the most common type is compensatory. Compensatory damages aim to put the nonbreaching party in the position that it would have been in but for the breach. If the contract was for the sale of goods, then the damages may be determined by the Uniform Commercial Code (UCC), adopted at least in part in all states.
Q: Does a contract have to be in writing?
A: It depends on the contract's subject. Many do not have to be in writing. However, some must be in writing under the Statute of Frauds, adopted in some form in most states. Under this statute, contracts that must be written include: (1) promises related to land interests, (2) promises in consideration of marriage, (3) administrators' promises to personally pay estate taxes, (4) promises to pay the debt of another, (5) promises that cannot be performed within a year and (6) promises for the sale of goods of $500 or more.
Q: How old must you be to form a valid contract?
A: In most jurisdictions you must be the age of majority (18) to form a valid contract unless the agreement is for necessities. Necessities may include food and clothing. Depending on state law, under some special circumstances a minor may be bound by a contract. However, usually a contract made by a person under the age of majority is voidable at the will of the minor.
Q: Can an incompetent person enter into a binding contract?
A: Generally, a person must have contractual competency. A contract may be voidable if one party, because of mental illness or impaired intellectual ability, is either unable to understand the transaction or incapable of reasonably fulfilling his or her responsibilities under the contract. The law varies from jurisdiction to jurisdiction about what it means to be competent to enter into a contract and how such circumstances are handled by the courts.
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