Contracts are part of everyday life, even if we don’t always notice them. From signing a lease to agreeing to terms on a website, contracts shape many of our interactions, laying down the rules for how we engage with others. Here’s a simple breakdown of what you need to know about contract law.
What Is a Contract?
A contract is a legally binding agreement between two or more parties that establishes mutual obligations which can be enforced by law. It outlines the obligations and rights of everyone involved, ensuring that the terms are followed. Think of it as a formal handshake—a promise to fulfill your side of the deal. If one party doesn’t stick to the agreement, disputes arise, which is when contract law steps in to resolve the issue.
Key Ingredients of a Valid Contract
To be enforceable by law, a contract needs several key components:
- Offer – An offer is a formal proposal from one party to another, showing their intent to enter into a binding contract. One party acts as the offeror, presenting the offer, while the other party, the offeree, has the potential to accept it. The offer outlines what one side is willing to do in exchange for something from the other party, like money, services, or goods.
- Acceptance – This occurs when one party agrees to the terms of an offer made by another. The acceptance is assessed objectively and can be communicated either explicitly or implied through the offeree’s actions. For a contract to be binding, the acceptance must be conveyed in a way that the offeror has authorized, requested, or could reasonably expect. For example, if Party A offers to sell a piece of land to Party B for Ksh 2 million, and Party B signs the agreement or begins making the payment, this would signify acceptance. Party B’s explicit action of signing the contract or implied action of starting the payment process shows compliance with the terms of the offer, forming a binding contract.
- Consideration – This is essentially an exchange between the parties, with one party benefiting and the other bearing a detriment. For instance, X offers Ksh 100,000 to Y, who agrees to renovate X’s apartment in return. X receives the benefit of the renovation, while Y incurs the detriment of spending time, effort, and resources on the work.
- Capacity – This signifies a person’s legal competence to engage in binding agreements. Capacity typically requires that the individual be of legal age and mentally sound. If a person lacking capacity signs a contract, it may either be void or subject to cancellation.
- Legality – The agreement must involve something legal. A contract for an illegal activity—like selling banned substances—is void, meaning it has no legal standing. Additionally, any contract involving criminal actions is automatically considered invalid.
Classification of Contracts
Contracts can be either oral or written. When classified by enforceability, they fall into several categories: valid contracts, which are legally binding; voidable contracts, which can become unenforceable for a variety of legal reasons; void contracts or agreements, which aren’t legally enforeceable; illegal agreements or contracts, which are prohibited by law; and unenforceable agreements, which, while valid, cannot be enforced due to technical reasons.
Contracts can also be classified based on their mode of formation or their performance. In terms of formation, contracts fall into three categories: express contracts, implied contracts, and quasi-contracts. Express contracts are those in which the terms are clearly stated, while implied contracts are formed through the actions or conduct of the parties involved. Quasi-contracts, on the other hand, are not actual contracts but are treated as such by the law to prevent unjust enrichment.
When classified by performance, contracts can be either executed, executory, unilateral, or bilateral. An executed contract is one where both parties have fulfilled their obligations, while an executory contract is one where some obligations are yet to be performed. A unilateral contract involves one party making a promise in exchange for the other party’s performance, whereas a bilateral contract involves mutual promises between two parties.
Breach of Contract
A breach occurs when one party fails to uphold their end of the deal. This could involve failing to deliver goods, not paying for a service, or completing a task late. Breaches often lead to legal action, where the wronged party may seek compensation or insist the contract be enforced. It’s akin to a musician missing a rehearsal—when one member of the band doesn’t show up, it disrupts the entire performance, affecting the harmony and preparedness of the whole group.
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