Contract Law: Elements, Enforcement, and Society

Introduction

For most of us living in Western societies, contracts pervade most of our waking hours — yet how often do we really think about the countless transactions we engage in every day? Buying a cappuccino at the corner Starbucks, streaming a video on Netflix, or coming home to a mortgaged house can involve countless contracts, both unstated and written. In fact, our ability to stream videos over the internet in our own home probably involves layers upon layers of contracts. Given the importance of contracts in everyday life, it should come as no surprise that volumes of statutes have been crafted at both the state and federal levels to define the legal parameters of exchange relationships. Contrary to expectations, however, some controversy remains due to opaque or contradictory judicial rulings (Chirelstein, 2010, p. 1). This paper examines the basic elements of contracts, the laws governing their use, and the impact of contracts on society.

The Elements of a Contract

A contract is legally enforceable if it contains the following four elements: (1) mutual assent, (2) consideration, (3) capacity, and (4) legality (Legal Information Institute, 2010). When one party makes an offer of exchange and the other party accepts, this generally represents an enforceable contract under the law (Chirelstein, 2010, pp. 36–38). This mutual assent can take the form of a written or verbal agreement, or it can exist simply by virtue of engaging in the exchange. Ordering a pizza over the phone, for example, involves mutual assent between the customer and the restaurant.

Consideration is what is exchanged, which may take the form of an act, a promise to perform a future act, or a promise to refrain from acting (Epstein, Markell, & Ponoroff, 2012, p. 31). The promise of paying $20 over the phone to a pizzeria constitutes consideration to the pizzeria, while the promise to bake and deliver the pizza is the customer's consideration. Capacity refers to a person's legal ability to enter into a contract (Chirelstein, 2010, p. 81). Minors, intoxicated individuals, and the mentally ill are generally considered to lack legal capacity. The element of legality simply requires that the exchange be recognized as legal — ordering marijuana from a dealer over the phone, for instance, would not be enforceable under contract law in most states.

Required Information for a Contract

Contracts represent a legal framework for the enforcement of promises (Chirelstein, 2010, p. 12). The Restatement of the Law, Second, of Contracts defines an enforceable contract as containing "a bargain" (as cited in Chirelstein, 2010, p. 12). In addition, the parties must give mutual assent and agree to provide consideration. A notable illustration of these principles is the Virginia Supreme Court case Lucy v. Zehmer (1954), in which an agreement written on a paper napkin was contested by two farmers. Both men had been drinking when Farmer Lucy offered $50,000 for Farmer Zehmer's property. According to Zehmer, the offer was made in jest to embarrass the financially strained Lucy; Zehmer even had his wife co-sign the napkin agreement to make the charade more elaborate.

In court, Zehmer claimed the offer was never serious, while Lucy argued that Zehmer never openly revealed he was joking. A lower court decided in favor of Zehmer, but the Virginia Supreme Court found that both parties had voluntarily assented to the exchange and reversed the decision. The contract contained a promise to sell Lucy the farm if he produced $50,000 within 48 hours — this was the bargain, the signatures represented mutual assent, and consideration took the form of a promise to pay $50,000 in exchange for a deed to the property.