Chapter Overview
Chapter 23: Contracts

A contract is an agreement between two or more people to exchange something of value. A contract legally binds the parties to uphold their end of the bargain. A party breaches, or breaks, the contract by failing to live up to the promise.

Elements of a Contract  A legally binding contract must have three elements—an offer, an acceptance, and an exchange of consideration. There must be an offer by one person and an acceptance by another. The offer must be made to a specific person, and that person must accept the offer on the proposing party's terms. To have a valid contract, there must also be an exchange of something of value. This item of value is called consideration. In order to be bound to a contract, the parties forming it must both be competent and aware of the conditions agreed upon.

Minors and Contracts  A minor is a person under the legal age of adulthood, which is 18 in most states. Minors may make contracts, but they generally cannot be legally held to their terms. For this reason, many stores require minors to have an adult cosigner who will assume responsibility if the minor cannot meet the contract's terms. Even without a cosigner, however, a minor may be held to contracts involving certain necessary items, such as food or shelter.

Written and Oral Contracts  Most contracts may be either in writing or spoken (oral). Some contracts, however, must be in writing in order to be enforceable in court. These include contracts for the sale of land or real estate, contracts to buy or sell items that are worth $500 or more, and agreements to pay money that someone else owes. A written contract provides better evidence of the terms the parties agreed to than an oral contract.

Illegal Contracts  Contracts will not be enforced by the courts if they involve illegal activities. For example, if you agreed to pay $50 in exchange for an item and the seller never gives it to you, you could go to court to make the seller deliver the item as promised. However, if the item you were trying to purchase was illegal drugs, the courts would not enforce that contract.

Although the law will not protect you from making a bad deal, there are some rare cases in which courts find the terms of a contract so unfair to one of the parties that they refuse to enforce them. Fraud and misrepresentation are other reasons courts may refuse to enforce a contract.