Standard Deviant

You may know what business is. You may even be familiar with law. Today, we're going to put them together--business law. We'll deal with one super-huge business law concept here--contracts.

Now, you've probably heard a lot about contracts. Maybe you've even signed one. Maybe your favorite basketball player just signed one. But what is a contract? Simply put, a contract is a legally enforceable promise or set of promises.

So, it follows that contract law determines what promises are enforced, whether promises have been performed, and remedies for breaches of contract (meaning somebody has broken a contract in some way). These remedies are basically compensation for, or fixes to, the breached part of the contract.

We'll get to the bottom of this contract stuff by looking at two areas: the sources of contract law and the requirements for a valid contract. We'll start with the sources of contract law.

The Sources of Contract Law

There are basically two sources of contract law: The Uniform Commercial Code (the UCC) and common law. Let's see how and when each apply to contract law.

In the chaotic days before the Uniform Commercial Code, each state in our fair union had its own commercial laws. It was anarchy! Well, it wasn't that bad, but things were inconsistent. The UCC was created to establish a uniform set of rules to govern commercial transactions. This, my friends, brought harmony and stability to our great nation. Or at least a little consistency. The UCC attempts to unify the national marketplace.

The UCC covers a broad range of commercial transactions. For our purposes, when we discuss the UCC, we're talking about Article Two, which concerns the laws covering the sale of goods.

What are goods? A good is a tangible item that a person can buy or sell. A loaf of bread is a good. Now, when you purchase that loaf of bread, you automatically become a party to a UCC contract. Not everything that can be bought or sold is a good. Something like a haircut, for instance, is not a good. It is a service.

Contracts that don't cover the sale of goods are covered by either other portions of the UCC or by common law. Common law, also known as case law, consists of law formed through court decisions. Things like services or land sales are covered by common law. Hmm, land is a tangible item that can be bought or sold, right? Why isn't it considered a good? Well, because it's not often that during a land purchase the land is actually physically moved someplace else.

A Common Law Case Study

Let's look at a case that illustrates common law and its application to contracts. We call it "Jack's Drywall Problem." It's about a service that wasn't performed correctly. Because it's a service, it falls within the boundaries of common law. In common law, there already exist lots of past cases that have dealt with services that were not performed that way the purchaser wanted them. In the case of "Jack's Drywall Problem," past decisions made by judges can be applied to this case.

Mel's a drywaller. Jack is a guy. A guy who had a wall that needed to be dried. Well, he had an area of his house that needed to be drywalled. Anyway, Jack contracted Mel to drywall his living room. So, Mel did some drywalling. The problem? Mel drywalled Jack's bedroom. And he didn't even do a good job. Mel did a bad job, and he did the wrong job.

In other words, Mel broke the contract in which he was to drywall the living room. Based on past court cases in common law, Jack can refuse payment to Mel, even though he did do some drywalling. In addition, Jack is entitled to receive the monetary equivalent of the amount of damage done to his bedroom.

Okay, that's a little background on the sources of contract law. Now, let's get down to the contract itself, and see what the requirements are for a valid contract.

The Requirements for a Valid Contract

What is a valid contract? Well, basically, a contract is valid when it meets all the requirements for the formation of a contract. The four main requirements for a valid contract are legal capacity, legality, agreement, and consideration.

Legal capacity: this means that the person signing the contract must be at least eighteen years old and mentally competent. Legality: this means that the contract must be for a legal purpose. Okay, those two requirements are fairly straightforward. The other two requirements, agreement and consideration, are a bit more complicated, so we'll go into a bit more detail for each.

The Agreement

An agreement is a mutual acceptance of the contract's contents by both sides. There are three parts to an agreement that we'll cover. They are the offer, the acceptance, and the objective theory of contracts.

The Offer

The offer is a proposal made by one person to another. The offer creates a legal relationship between these two people once the offeree accepts. Who's the "offeree"? Well, when it comes to contract law there are two parties--the offeror and the offeree. The offeror is the party who makes the offer. The offeree is the person who either accepts or does not accept the offer. So, for there to be an agreement, there must be three things: an offeror, an offeree, and of course, an offer!

Now, how exactly do you make an offer? The process of making an offer requires that the terms are clear. The offeree (the party who either accepts or does not accept the offer) needs to know exactly what is being proposed.

Making an offer is kind of like playing a game of tennis. The ball starts in the offeror's side of the court. Once the offer is made it gets sent into the offeree's side of the court. So, think of the offer as the ball. Once this offer is made to the offeree, something called power of acceptance comes into play.

Power of acceptance means that the offer is now being controlled by the offeree. The offeree may either take the ball or hit it back to the offeror. At this point, the offeree is able to examine the offer, and consider whether or not she wants to accept it. This leads us to acceptance, the second requirement of an agreement.

Acceptance occurs when the offeree communicates her assent (that is, her acceptance) of the offer. In other words, it's when the offeree says to the offeror, "Okay, your offer sounds cool with me,