Grade 5 Lesson 6: #Contracts
A contract is an #agreement describing certain obligations binding two or more #parties.
For a #contract to be valid, it must meet the following criteria:
1. There must be a meeting of the minds between the parties, meaning that they must have all generally understood what was being agreed.
2. There must be consideration given by all the parties, meaning that every party is exchanging something of value and suffering a detriment as part of the #transaction.
3. Both parties must have the capacity to understand the terms of the contract they are entering into, and the consequences of the promises they make
4. The contract must have a lawful purpose i.e. it cant be used for #illegal purposes
Note that an informal exchange of promises (i.e. a #verbal contract or #oral contract) can still be binding and legally as valid as a written contract. A verbal contract is simply a contract that uses words. All oral contracts and written contracts are verbal contracts. Contracts that are created without the use of words are called "non-verbal, non-oral contracts".
The existence of a written contract does not necessarily ensure its enforcability or validity. A contract can be deemed unenforceable if it requires a party to undertake an illegal act, if it was signed under duress or while intoxicated, if the disparity in knowledge between the parties is extreme and the weaker party was given onerous terms, etc.
There are three types of contracts that are not #binding. A contract is void if it is based on an #illegal purpose or contrary to public policy. It will not be recognized by court or enforceable by either party. A contract is voidable if one of the parties has the option to void the contract. Contracts with minors are examples of voidable contracts. Finally, a contract is unenforceable if it does not comply with the law of the specific state/country. For e.g., an oral contract for the sale of a motorcycle for $5,000 is invalid if the law requires that any contract for the sale of goods over $500 must be in writing to be enforceable.
A contract can be either an #express contract or an #impliedcontract. An express contract is one in which the terms are expressed verbally, either orally or in writing. An implied contract is one in which some of the terms are not expressed in words.
In the #UnitedStates (for example) the validity of contracts is protected directly in the #Constitution. The rules by which contracts are judged are codified by each state in a commercial code, most of which are based on the Uniform Commercial Code (UCC).
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