Basic Rules of Contract Law
Contract law is the area of law which deals with promises people make to one another, and when those promises are enforceable. Essentially, contract law allows parties to an agreement to make law between themselves, which the courts will then enforce, so long as certain rules are followed and requirements met.
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Offer
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The way a contract is initiated is an offer. The offer is the process whereby one of the parties offers to do something for another. A common example is the offer to purchase a home from another. An offer must state with some specificity what the person offering (the offeror) proposes to do.
Acceptance
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The second requirement for a valid contract is acceptance. Acceptance is when a person receiving an offer (the offeree) agrees to accept the offer. A valid acceptance must usually accept all of the terms of the offer without changes. When an offeree attempts to change any terms of the offer, he has created a counteroffer, which the original offeror may then accept or decline.
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Consideration
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The contract is formed by an offer and an acceptance, but in order to be valid, it must also recite consideration. Consideration is the exchange of value between the parties to the contract. For instance, the offeror agrees to transfer his house to offeree, and offeree agrees to pay offeror $200,000.00. Consideration does not have to be money, but must be something of value, such as an exchange of services.
Fairness
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A contract must be fair, or to put it in legal terminology, it must not be unconscionable. A contract is unconscionable when it favors one side so strongly as to be clearly unfair to the other side. In order for a contract to be found unconscionable, there must usually be both substantive unfairness (for instance, significantly inadequate consideration) and procedural unfairness (great disparity in the bargaining positions of the parties during the contract negotiations).
Legality
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Finally, a contract must have a lawful purpose. Contracting to sell a house is fine. Contracting to sell illegal drugs is not. A contract with an illegal purpose is always void and unenforceable.
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