Contract Basics

 

By Albert Kelley

 

Now we are going to start discussing contracts. What is a contract? A contract is a legally enforceable agreement between two or more entities. It may be verbal or written, it must be entered into freely, and it must create an obligation on all parties. It must also be for a lawful purpose. A contract to commit a crime is not enforceable.

Often in the legal field, when dealing with contracts, the parties are referred to by various terms. They may be called the promisor and promisee, or the obligor and obligee. These are not only confusing, they are misnomers. In a contract, both sides have an obligation. If there is not an obligation on one side, the contract is merely an unenforceable promise. In a contract, there must be a promise on both sides to do some act. Usually, one side promises to provide a good or service and the other side promises to pay money. To be clear, the contract should use the names of the parties, or a recognizable segment of their names, rather than ambiguous terms.

 

 

Any legal entity may enter a contract. This includes individuals, corporations, partnerships, even governments. Contracts may involve adults or children, although contracts with children present special problems. Often contracts will involve three or more parties. As an example, several years ago, I was involved in contact negotiations involving four separate parties. Because of the structure of the deal, all four were named in the contract and all four had obligations under it. You see this often in real estate transactions where there is a buyer and seller, as well as real estate agents.

 

 

A contract arises based upon an offer and acceptance. Let’s say I offer to sell my car for $10,000. This is not a contract because no one has accepted it. Or, if Ron offers to buy my car for $50. Still, there is no contract because I have not accepted the offer. A contract does not arise until both sides agree on the substantial terms of the deal. What about ads? Example: Sears advertises in the newspaper to sell a shirt for $10. John picks up the paper and takes the ad to Sears. Are they obligated to sell him the shirt? No. By a quirk in the law, Sears has not made an offer. They have merely made an indication of what offer they would accept. Whenever you go to the store, you are making an offer to buy, which the store can accept or reject. This is how they can refuse to sell to certain customers.

 

 

Now let’s go back to my car. I tell Bob I want to sell my car and he says he wants to buy it. Is there a contract? No. We didn’t agree on the price. What if we agree to determine the price later? Still no contract. The price is a substantial term. This is essentially a contract to enter into a contract, which is unenforceable. All the substantial terms must be clear and agreed to in order to have a valid and binding contract.

 

 

If the parties realize that they did not agree on the terms of a contract the contract becomes voidable. This happens when language is unclear or items in the contract are either left out or vague. As an example, if Bob and I agreed on a price for my car, there may still be questions. Perhaps Bob thought I would accept payments and I wanted a single payment. Or maybe Bob thought he could pay next week and I want the money now. If these are substantial terms, there is still no contract.

 

 

Offers and acceptances must be clear. If an offer is clearly not made in good faith, an acceptance won’t make a binding contract. For instance, if my car breaks down and out of frustration, I yell, “I will sell this to the first person that gives me $10!” That is not a good faith offer. Similarly, an acceptance that is not clear is invalid. If I say I want to sell my car for $500 and Bob says: “Sounds good”, is he accepting the offer or merely commenting on my idea?

 

 

It is important to keep your contracts clear and complete to stop disputes from arising.

 

 

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is so the author of “Basics of Business Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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