What is the essence of a legal contract?
Vail, CO, Colorado
“What is a contract?”
That may seem like a simple, even self-evident question, but the answer may be more elusive than appears at first blush. Anyone old enough to be out of swaddlings knows that a contract is an agreement. The question, though, is what raises a simple agreement to an obligation to which the parties will be legally bound and which may be enforced before a court of law? The distinction between the two is the essence of a contract.
At its most elemental, a contract is an agreement between two or more parties which creates an obligation to do (or not to do) a particular thing. To be binding, certain essential requirements must be met. First, the parties to the agreement must be competent. Therefore, a party laboring under a mental or emotional infirmity may not be legally able to contract. Similarly, a minor is, under most circumstances, legally incompetent to contract.
The second requirement is subject matter. What is the basis of the contract? Whatever the thing is agreed upon, it must be clearly laid out and understood by both.
Next, there must be “consideration,” meaning that something of value must be exchanged in return for performance of the obligation. You give me your car and I give you money; we both part with something of value to make the deal.
In this circumstance, where money changes hands, the amount of money changing hands must also be clear. How much money are you paying for the car? Of course, not only money can change hands to make a deal. I can agree to trade my labor (presumably, something of value, in exchange for which you pay me money, or agree to mow my lawn, or something which in some way “advantages” the other party and “disadvantages” each of us.
Incidentally, the “consideration” must be something legal. You can’t, for example, agree to exchange a pound of pot in return for my car or to sell yourself into either slavery or prostitution in return for my wheels. Think of it pragmatically. Are you going to march into court claiming I’m in breach of our agreement when you traded something illegal with me in return for my obligation? “Your Honor, I sold myself into slavery and now he won’t sell me the car!” A tough sell, to say the least.
There must also be mutuality of agreement, that is, the parties must understand that they’re making a deal for the same thing on the same terms. An example or two might be helpful here. Suppose you and I are dealing for the sale of my car. I agree to sell it to you and you agree to buy it. So far, so good. We reach an agreement on the price. But when the big day comes for you to pick up your new wheels, I present you with my 1969 VW Bug. You thought you were getting the ’98 Ferrari. Oops, no mutuality of agreement. And no deal.
Let’s use the car deal again. This time we both know its the ’98 Ferrari. We agree to 30,000 as payment. But when you come to pick up the car, you hand me dollars instead of euros. Again, no mutuality of agreement; therefore, no deal.
Lastly, there must be mutuality of obligation. I can’t oblige you to do something or to give me something except in exchange for something of mine. If you promise to mow my lawn for me, for example, just because you’re a heck of a guy, I can’t sue you to get the grass mowed if you change your mind. Contracts are enforceable; gratuitous promises are not.
These things, taken together, are the “essential elements” of a contract, the things you must have to have an enforceable agreement. Of course, there may be many, many more obligations which may be spelled out. Commercial, construction and development contracts can be, and often are, minutely detailed, laying out with great specificity a whole host of obligations and counter-obligations. The higher the price of the deal, the more detailed the contract becomes.
One last word: Oral contracts ” that is, those made verbally and not in writing ” may be equally enforceable, in most circumstances, as a written contract. There are, however, some agreements which must be written to be enforced. The main problem with a verbal agreement, however, is proving its terms if a disagreement ever arises.
Then, with little or nothing to point to regarding the contract’s elements, the dispute inevitably dissolves into a “swearing contest” which is difficult, if not impossible, for the court to reasonably decipher.
Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Robbins lectures for Continuing Legal Education for attorneys in the areas of real estate, business law and legal ethics. He may be heard Wednesday nights at 7 p.m. on KZYR radio (97.7 FM) as host of “Community Focus.” Robbins may be reached at 970-926-4461 or at his e-mail address: firstname.lastname@example.org.
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