What Defines A Contract?
A contract is an agreement between two parties that establishes a responsibility to carry out a specific duty.
The following requirements must be met for a contract to be legally enforceable; each is covered in more detail below.
Does the name of the document affect whether it is a contract or not?
No, is the swift response. What you call a contract has no bearing on whether it is enforceable as long as all of the essential components are present. It doesn’t matter what a document is called—a Letter of Agreement (LOA), a Memorandum of Understanding (MOU), a Letter of Intent (LOI), or anything else—if it has all the features above, it is a contract.
A “Meeting of the Minds” of Offer & Acceptance: Mutual Assent
A “meeting of the minds” or mutual assent is created between the parties by a legally valid offer and an accepted offer. The parties to a contract must show their agreement to the terms of the contract in order for it to be valid.
The Deal
The Offer is the essential component that spells forth the crucial terms of the contract. The ability of the receiving party to accept or reject the offer is a requirement for an offer to be legally binding. The clarity of the offer is not affected by whether or not the receiving party reads the contract. Only a clear opportunity to accept or reject the contract must be presented to the receiver in the offer. Unread contracts are signed at the peril of the party who does so.
A valid offer must also include clear and unambiguous terms. The phrases must be easily understandable by a reasonable person in order to be deemed definite. For instance, courts frequently assess the clarity of the following four main factors when deciding whether the terms of a procurement contract are definite:
the parties, the duration or service schedule for performance, the price or value, and the nature or extent of the services;
Examples:
UTSA accepts a vendor’s offer to store its backup data for $1,000 per month. The service terms are vague, hence this agreement might not be regarded as an enforceable contract. The agreement lacks a storage location, a description of the storage structure, information about storage security, and specifics regarding how the data would be moved to storage, among other problems. The structure also leaves open the question of how long the data would be kept. This Agreement may be judged confusing and unenforceable since the subject matter is open to several interpretations.
Similar to this, an enforceable contract might not exist if two parties just agree to execute a service for a future price. Normally, mutual assent cannot exist when the value is unknown.
Keep in mind that requests for proposals (RFPs) and other procurement solicitations like bids are not considered offers. These solicitations, among other things, are not conveyed to any specific party and are subject to cancellation at any time. Purchasing solicitations are typically seen as essentially open invitations to the public to submit an offer.
The Recognition
The acceptance must be explicit and unqualified in order for it to be considered valid. In other words, the acceptance must adhere to the offer’s precise conditions. The “mirror image” rule applies in this case. If the acceptance is contingent on another occurrence or requirement, it generates a counteroffer, and the parties’ positions are reversed. The acceptance with conditions turns into a fresh offer.
The Uniform Commercial Code (“UCC”), which does not apply to services, contains an exception to the Mirror Image requirement for contracts between merchants for the sale of commodities. A conditional acceptance will be considered a part of the contract under the UCC (Texas’ Texas Business and Commerce Code), unless the extra terms fundamentally alter the offer.
Taking into Account the Value of the “Bargained Exchange”
The parties to the contract must exchange something of value for the agreement to be regarded as enforceable. For instance, if a customer contracts for lawn service, both the buyer and the vendor profit financially.
Mutual consideration is required. There must be an exchange of value between the two parties. An arrangement is typically referred to as a gift rather than an enforceable contract if only one party benefits from it.
There is no requirement that the consideration contain money. For instance, a manufacturer of athletic goods might donate basketball shoes to the Athletics Department in exchange for the sole right to display its logo on team gear. Even if there was no cash transferred, both parties would have received fair value from such an arrangement.
From a legal standpoint, the consideration’s market worth is generally irrelevant. Not whether the trade constituted a fair market bargain, but rather whether the parties requested and consented to the contractual arrangement is what the law is concerned with.
Who or what entity determines a contract?
Common Law – Most Business Contracts (Court-made Case Law)
The majority of business transactions are governed by common law, which is a set of customary regulations that are continually changing and are mostly based on prior court rulings. It is possible to identify which state’s common law will apply based on a number of variables, including the location of the contract’s performance or execution. In most cases, the parties will specify the applicable state law in the contract itself.
Contracts for Goods: The Uniform Commercial Code (Texas Business and Commercial Code)
The Uniform Commercial Code (UCC) is usually used to define contracts for commodities and products. The Uniform Commercial Code (UCC) is a set of uniform rules that govern the law of commerce, particularly when it comes to the sale of tangible objects and secured transactions. Service agreements are not subject to the UCC. The UCC is a model law produced by the National Conference of Commissioners on Uniform State Laws and the American Law Institute. The UCC has been enacted in some form in every state. Under the Texas Business and Commerce Code, Texas adopted the UCC. Remember that the UCC has not typically been used by courts to examine licensing for software and associated technologies.
Particular Statutes
There are numerous industries with special laws that affect the contracting process, including utilities and real estate. When engaging into contracts, government organizations are subject to a number of statutory restrictions and obligations. On the Business Contracts website, on the page titled “Common Contract Terms Explained,” some of these regulatory requirements are discussed.
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