General Principles of the Law of Contract
A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties. A contract is legally enforceable when it meets the requirements of applicable law and in the event of a breach of contract, the injured party may seek judicial remedies. That’s why, If you are involved in a business agreement, one of the first things to determine is whether the promise or agreement at issue will be considered an enforceable contract under the law.
Two primary sources of law govern contracts; the common law and the Uniform Commercial Code. The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. That’s why, the UCC has been called “the backbone of American commerce.”
The UCC Article 2 governs contracts between a merchant and the sale of goods. On the other side, Common law governs transactions with real estate, services, insurance, intangible assets and employment not governed by the UCC. It should not be forgotten that, since contract law is a state law issue, each state may have different laws related to contracts, the UCC seeks to provide uniformity to contracts law among the different states. However, like other uniform laws, the UCC does not become a law until state legislatures adopt it as law.
The elements of common-law contract formation include offer, acceptance, and consideration. Offer and acceptance together form mutual assent. Acceptance can be performed either by a promise or a performance, but silence is not considered acceptance unless some cases happen. Additionally, to be enforceable, the contract must be for a legal purpose and parties to the contract must have capacity to enter into the contract. The acceptance must conform to the exact terms of the offer. This is termed the “mirror image” rule. If the acceptance is conditional on another event or stipulation, then it will fail to meet the requirements of an acceptance, it creates a counteroffer and the roles of the parties become reversed. This means that any variation thereof constitutes a counteroffer. At times, Disputes can arise pre-performance and post-performance because of negotiating the terms of a contract and each party wants to contract on the basis of its own terms. In this case, called “battle of forms”, the battle is often won by the party who fired the “last shot”, that is, last form sent dictates terms of contract. When it comes to consideration, consideration must be mutual. Both parties must give something of value and receive something of value. If only one party receives value from an arrangement, the arrangement is generally defined as a gift rather than a contract.
Although it does not seek the conditions written in the contract, there is an arrangement called Statute of Frauds that regulates that contracts must be made in writing. While each state has codified its own version of the Statute of Frauds to cover various types of contracts, every state requires the five contracts to be signed and in writing, Only need writing on party that you are seeking to bind;
- Real Property Contracts
- Contracts that cannot be completed within a Year
- Consideration of Marriage
- Surety Contracts
- Debt of a Decedent
- Sale of goods over $500 (covered by UCC § 2-201)
A contract modification in part or whole refers to a situation where the contracting parties agree to change the terms of their original agreement. Any contract can be modified before or after signing the agreement, but all parties must agree to the changes. If any party doesn’t agree to the modification, the changes will be invalid. Under the common law, a contract can only be modified if there is additional consideration or benefit given for the modification. On the other hand, under the UCC, a contract can be modified without any additional consideration. It means that the UCC allows a counter-offer to be considered part of the original offer and creates a binding contract depending on the specifics.
There are a number of reasons why a contract might be not enforced a contract, called defenses to the contract, which are designed to protect people from unfairness in the bargaining process, or in the substance of the contract itself. We will be going through the cases whether makes contract void and voidable. While the roots of those words are the same, they have different meanings when applied to contracts. A void contract is one that is illegitimate and unenforceable no matter what. On the other hand, although the name may lead you to believe differently, a voidable contract is actually a valid contract that can be enforced if both parties decide to move forward with it.
- Fraud; a contracting party can establish the defense of fraud if one can prove some such as reasonable reliance, damage, intent to deceive, intent to induce reliance, misrepresentation of material fact by defrauding party
- Fraud in the execution; it happens when a party is deceived into signing something that he does not know is a contract, In this fraud, it makes a contract void
- Fraud in the inducement; the defrauded party is aware he is making a contract, but terms are materially misrepresented. In this fraud, it makes a contract voidable
- Innocent misrepresentation; It makes the contract voidable
- Duress; duress arises when a party’s free will to contract is overcome by an unlawful use of a threat of harm. The void or voidable of the contract depends on whether the harm threatened is physical force or economic, social.
- Undue influence; It makes the contract voidable
- Mutual mistakes; It makes the contract voidable
- Unilateral mistake; It makes the contract voidable
- Illegality; if the consideration or the subject matter of a contract is illegal, the contract generally is void
- Intoxication; it happens only if the intoxication prevents the promisor from knowing the nature and significance of his promise and the other party knew of the impairment
- Adjudicated mental incompetency; It makes the contract void
- Statute of limitations; if the statute of limitations period has expired on a contract, it is unenforceable, it does not make a contract void, but merely bars access to judicial remedies
- Statute of frauds
- Impossibility; it is available as a defense
- Accord and satisfaction and substituted contract; an accord is an agreement to substitute one contract for another, and the satisfaction its execution or performance. And accord and satisfaction discharge the original duty. A substituted contract is very similar to an accord and satisfaction, but the duties under the original contract are discharged immediately, whether an agreement is an accord or a substituted contract depends on the intent of the parties
- Novation; it occurs when a new contract substitutes a new party for an old party in an existing contract. All parties must agree to the release
- Material breach; if one party prevents the other from performing contract duties, the non-breaching party is excused from performance
- Parol evidence rule; It is a contract law doctrine that prevents parties to a written contract from presenting an evidence of terms in a contract that contradict, modify, or vary the terms of a written agreement, when that written agreement is finalized
