ontract law is of great importance in business and in everyday life. Common trans-
actions such as buying a pack of gum at the corner grocery store, purchasing a ticket
at a movie theater, or ordering a meal at a restaurant involve making contracts, but
so does a complex patent licensing agreement between two multinational corporations. In
this unit, we will explore the nature of contracts, the requirements for their valid formation,
and the consequences for their breach.
A contract is a legally enforceable agreement between two or more people. Although all
contracts contain enforceable promises, not all promises result in contracts. Consider the
Henry invites Ericka to dinner, and Ericka accepts. Henry looks forward to the date and can
think of little else all day long. A half hour before they were to meet, Ericka calls Henry and
tells him that she will not be able to keep their date because Ron has invited her to go danc-
ing and she has accepted. Henry is upset, hurt, and angry and would like to sue Ericka for
breach of contract, since she has clearly broken a promise made to him earlier that day and
caused him distress. Will he succeed?
Ericka may not be a very nice person, and she may have had a moral obligation to attend
the dinner date. Nevertheless, she had no legal obligation to do so. The agreement that she
breached was not a contract, but merely a social obligation that the courts will not enforce.
In order for there to be a valid contract, five basic elements must be present. Before we get
into the detailed requirements for a valid contract in this unit, it may be useful to have at
least a working definition for each of the required elements:
An invitation for another to enter into a contract.
Acquiescence to enter into a contract under the terms of the offer.
Anything of legal value that is asked for and received as the price for
entering into a contract.
The extent to which the contract is legal and not against public policy.
The mental competency to enter into a contract. Additionally, there are
special rules for people who are under legal age.
In some cases, there is a further requirement that the contract be in a particular form, for
example in writing, in order for it to be enforceable. In other situations, a contract may
prove not to be binding because the parties did not truly assent, such as in the case of fraud