Elements of a Contract

The first class session of my Business Law class this semester focused on four aspects that make up a contract. Without all four elements, there is no contract. With all four in place, a contract is valid. The four elements are:

• Agreement
• Consideration
• Capacity
• Lawful object

Agreement

Agreement refers to the understanding between the parties to the contract about what the contract means. This includes the nature and details of a promise or act. In a bilateral contract the agreement is made up of a promise for a promise. A unilateral contract involves a promise for an act.

Consideration

Consideration is anything of legal value that is in play for the contract. This may include money or other assets. It may also be something else that each party to the contract assigns value to, regardless of it’s monetary value. In some cases promissory estoppel is used in place of consideration.

Capacity

Capacity refers to the ability of a party to the contract to understand and commit to its terms. Some things that affect capacity include age, state of mind and even blood alcohol level. Contracts entered into by parties that have impaired capacity may be considered voidable or even void.

Lawful object

A contract must have a Lawful object. This means the contract cannot have an end that is illegal or prohibited. If a contract is entered into which has an illegal object, it is unenforceable. This may include crimes and fraud.

Uniform Commercial Code

The Uniform Commercial Code (UCC or U.C.C.) is a collection of recommendations or ideals that are generally agreed upon and can be used in the creation of a contract. The UCC may vary from state to state and is not strictly a law in all places. The UCC deals most specifically with Goods.

Timing

Timing plays several roles in contract law. May contracts become void after a certain amount of time has elapsed. This is one way to terminate a contract.

Timing also is crucial to the establishment of a contract. The effects of timing in terms of the offer being accepted, rejected or a counter offer being made were complicated in the past when the primary communication mechanism was traditional mail. Today, with email and other forms of electronic communication, there is much more precision and perhaps even more complexity.

Other elements

Contracts may have the following states

• valid
• void
• voidable
• unenforceable
• executory
• executed

Fairness and judgement

The concepts of fairness and judgement factor in to contract law in significant ways. This suggests that the differences in outcome can vary significantly from choice of law and choice of venue. Even from one judge or jury to another. There is some evidence of this difference in locality trends. For example, Delaware is a favorite for incorporating due to the structure of the courts there. There are courts that specialize in and deal only with business law, including contracts.

Obviously there’s a lot more to contracts, but that’s a quick primer to get you started.