A contract is an agreement between two or more persons whereby each of the parties involved binds itself to do or not to do a particular thing. An obligation is created and determined solely by the will of the parties. When examining the legalities of a contract, the business of the law is to give effect to the parties' plain intentions. The making of a contract involves two distinct acts: making an offer and accepting it. Contracts may be verbal or written, preferably the latter. Contracts running for longer than a year or dealing with real property must always be in writing.
Parties to a contract must be competent. The violation of a contact makes the offender liable for financial and other damages, so only responsible persons can be permitted to enter into such agreements. An incompetent person, whether by mental disease, mental defect or under the influence of alcohol or narcotics, cannot exercise free will and enter into a contract which the law will uphold. Minors cannot enter into binding contracts, unless they have been emancipated.
Meeting of the Minds
The intentions of both parties must be clear and in accord. This is called "meeting of the minds." A contract obtained by compulsion, fraud, misrepresentation or through a clearly proved mistake on the part of contracting parties cannot be legally enforced.
The activity in a contract must be lawful. Certain betting and gambling agreements, contracts imposing illegal interest rates, agreements to commit crimes and agreements in restraint of trade are void. An agreement in restraint of trade is one that interferes with the right of either party to engage in a particular business. For example, a grocer selling his store and agreeing in writing never to engage in the grocery business is not a binding contract. If the grocer contracts to refrain from starting a grocery for a specified period of time, like 10 years, the agreement is lawful.
A legal agreement must provide for consideration or value. If one party promises to do something for nothing, there is no contract. There is nothing to compel either party to abide by their promise. Adequate consideration is left to the judgment of the parties. If the rights of creditors of either party are involved, gross inadequacy of consideration may be ground for contesting the contract.
A contract is discharged by violation, agreement of the parties or when the obligations of the agreement have been fulfilled. If one party willfully alters the contract changing the effect of the agreement, the other party is relieved from obligation. If a contract is broken and damages result, the parties may agree upon a sum to compensate the injured person. If no agreement is reached, the injured party has the option of utilizing the court system to obtain damages.