A contract, in law, an agreement that creates an obligation binding upon the parties involved. The essentials of a contract are as follows: mutual assent; a legal consideration, which in most instances need not be money-related; the parties having the legal capacity to make a contract; absence of fraud or duress; and a subject matter that is not illegal or against public policy.
In general, contracts may be either oral or written. Certain classes of contracts, however, in order to be enforceable, must be written and signed. These include contracts involving the sale and transfer of real estate, and contracts to guarantee or answer for the miscarriage, debt, or default of another person.
II TYPES OF CONTRACTS
Contracts are often classified as either contract by speciality or simple contracts. A contract by speciality depends for its validity on the formality of its execution. It is required to be written, sealed, and delivered by the party to be bound by it. The usual form of speciality contract is a covenant. A bond, although in a form an acknowledgement of indebtedness instead of a promise to pay, has always been regarded and classified as a speciality contract. Contracts by speciality do not require consideration or surrender of a right, given in exchange for the promise, to give them validity. Courts of equity, however, will not enforce a speciality contract unless it is founded on a consideration.
Simple contracts do not depend for their validity on any particular formality in their execution, but rather on the existence of a consideration. A simple contract may be written or verbal, or may even be implied from the acts and conduct of the parties manifesting their intentions. It usually comes into existence as the consequence of an offer and acceptance. In contracts entered into by letter, in most jurisdictions, the offer, unless it stipulates otherwise, is deemed to be accepted on the posting of the letter of acceptance. Inasmuch as agreement must be in effect in order to create a contract, any mistake in setting forth the terms of the offer or acceptance that should be apparent to the other party negates the agreement, and no contract will arise. A mistake as to some collateral matter, however, will have no effect on the contract, unless induced by fraud, in which case the defrauded party may rescind the contract. Thus, if A, intending to sell the property to B for £50,000 inadvertently writes £5,000, and B, who should know of the error, accepts, no contract arises; but if A offers £5,000 because he or she is in error as to the value of the property, a contract does arise.
Simple contracts are frequently classified as express and implied. An express contract is one entered into on terms expressed in spoken or written words. An implied contract is one that is inferred from the acts or conduct of the parties.
III NULLIFYING CONTRACTS
The contract of a person mentally impaired or a person so under the influence of psychotropic (mind-altering) drugs or alcohol as to be incapable of a free exercise of will is sometimes said to be wholly void. In recent cases, however, such contracts have usually been regarded as merely voidable; and in some instances, they are enforced if the other contracting party is unaware of the incompetency and the terms are fair. The contract of a minor, usually a person under the age of 18, is not void, but voidable, and it may be affirmed by that person on attainment of full age.
IV BREACH OF CONTRACT
In a case of a breach of contract, the injured party may go to court to sue for money damages, or for the contract to be rescinded, for the injunction, or for specific performance if money damages would not compensate for the breach. Specific performance of a contract is the right by one contracting party to have the other contracting party perform the contract according to the precise terms agreed therein.