Back to Basics: Definition and Formation
Simply put, a contract is a promise or a set of promises between two different parties. When such promises exist, the law recognizes each party’s performance as a duty, and failure to carry out your promise can result in the other party taking legal action against you.
There are really only two types of contracts: express contracts and implied contracts. Express contracts are formed by actual words, either spoken orally or written down on a piece of paper. An example of this would be an employment contract. As an employee, you may be required to read through a company policy or handbook and sign a paper stating that you’ll agree to abide by and uphold the rules set forth in those memoranda. On the other hand, implied contracts are contracts that are formed by the conduct of the parties. For example, if Aaron tells Beth that he’ll mow her lawn if she cooks him dinner, and Beth then cooks him dinner, Beth has accepted Aaron’s offer by taking action through her cooking.
So what’s the basic formula for the formation of a contract? Well, to those in the legal world, the 3-step formula is:
(1) Offer + (2) Acceptance + (3) Consideration = Contract (K)
Huh, you ask? Basically, a contract, (the symbol for a contract being the letter K), is an offer by one party, acceptance of the offer by the other party, and consideration for the deal. Still clueless? Let’s break these concepts down one-by-one.
Next, we’ll explore the first step in creating a contract.