All of us enter into contracts at some time or the other. For instance, when we agree to buy a house, or sell a car, or promise the customer some service, we are entering into a contract. When two parties agree to do (or even not to do) something in exchange for consideration, they are said to have entered into a contract. Contracts are governed by the contract law of the respective country.
According to the U.S. contract law, and even the law in most other countries for that matter, a contract is made up of four distinct elements:
A contract is said to have been entered into through mutual assent when there is an offer and an acceptance. So when a person shows that he is seeking acceptance for something and is willing to be legally bound by certain specific terms, he is said to have made an offer. When a person expresses consent to the terms of the offer, there is said to be an acceptance.
In every contract, the person who accepts the contract gives something of value to the person who offers the contract in exchange for something of value given to him by the offerer. As per contract law, the ‘something of value’ given by the acceptor is called consideration.
People are not said to have entered into a contract just because they have mutually consented and there is a consideration involved. It is equally important that the people who enter into the agreement are legally competent parties. For instance, an agreement entered into with a minor cannot be called a contract. Similarly, an agreement entered into with an insolvent person is not a contract and does not come under the purview of contact law. The law should recognize that both the offerer and the acceptor are competent to enter into a contract.
It goes without saying that the agreement should be for doing something legal. The contract law stipulates that if the purpose of the agreement is to steal somebody’s property or cheat somebody, then such an agreement is not enforceable in the court of law as the purpose is illegal and hence cannot be called a contract.