And name the 6 conditions a contract must meet in order to be enforceable

A contract is any agreement between two or more parties that is enforceable in court. As Figure 3 shows, a contract must meet six conditions to be enforceable. It must involve the agreement and consent of two capable parties. It must result in some consideration to both parties. And it must be legal and properly drawn up. If all of these conditions are met, one party can seek legal recourse if another breaches (violates) the terms of the agreement.

Agreement of Both Parties. The simplest element of a contract, agreement is the serious, definite, and communicated offer and acceptance of the same terms. If an auto parts supplier offers in writing to sell a repair shop rebuilt engines for $400 each and if the repair shop accepts the offer, the two panics have reached agreement.

You cannot be held to a clearly joking offer to pay someone $1 million to wash your car. Nor can you be billed $ 100, 000 by a repairperson who decides to accept your vague offer “I'll pay top dollar if you fix my air conditioner.” An offer contained in a letter that is never mailed is not a contract. And no contract exists if a sup­plier offers to sell you ten records for $ 1 and you make a counteroffer of eight records for 75 cents, because no agreement has been reached.

Real Consent of Both Parties. Beyond mere agreement, a legally enforceable contract must involve real consent. That is, the contract is not enforceable if any of the parties involved have been affected by an honest mistake, fraud, or pressure. Consider a few possible cases.

o A manager of a small department store agrees verbally to buy ten dresses from a designer based on a sample showing a retail price of $50, but later learns that the dresses sell for $100.

o A manager orders a painted sign with the company's name but the sign company delivers a neon sign instead.

o A supplier threatens to cut off a firm's credit unless the company increases its orders dramatically.

The mistakes, fraud, and pressure (sometimes called duress) in these cases limit the degree of real consent between the two parties and make these contracts unenforceable.

Capacity of Both Parties. To give real consent to an agreement, both parties must demonstrate legal capacity (competence). A person who is judged mentally ill or incompetent by a court of law cannot be held to a contract. Someone under the influence of alcohol or other drugs might not be judged competent.

In addition, a person who is not of legal age cannot enter into a binding contract. Legal age varies from state to state and with circumstances. For most contracts, the legal age is either 18 or 21. However, some states permit 15-, 16-, and 17-year olds to marry (a legal contract), and a number allow minors to borrow money to pay the costs of a college education.

Consideration to Both Parties. An agreement is a legally binding contract only if it includes an exchange of considerations — items of value. Thus, if your brother offers to paint your room for free, you can't sue him if he doesn't do it. But «items of value» do not necessarily entail money, changing hands. For example, an accountant might agree to prepare a fence contractor's tax return next year in exchange for the contractor's installing a new fence at the accountant's home. Both the tax preparation service and the fence installation service are items of value.

It is important to note that contract law does not require con­tracts to be rational. Nor does it require a contract to provide the best possible bargain for both sides. Enforceable contracts need only include «legally sufficient» consideration. The terms of the contract are met as long as both parties receive what the contract calls for. However, as the International Report «At Their Bidding No More» shows, competitors who work together to rig prices may be subject to legal action.

Legality of the Contract. To be enforceable, a contract must be for a lawful purpose and must comply with federal, state, and local laws regulations. Thus a contract to buy cocaine, which is an illegal drug in the United States, would not be upheld by the courts. A contract be­tween two companies to fix the price of a product (price-fixing) is illegal and thus would not be enforceable. And despite the popular idiom, a mobster cannot put out a legal contract to have someone killed.

Proper Form of the Contract. A contract may be written, oral, or implied from conduct. To be enforceable, however, a contract must be written if it involves goods worth over $500, the sale of land, or an agreement that will take more than one year to fulfill. For example, a valid contract to work as an engineer on a 14-month dam project would have to be in writing. All changes to a written contract must also be in writing.

Breach of Contract. If an agreement conforms to all six of the.conditions just discussed, it is a legally enforceable contract. What can one party do if the other party fails to live up to the terms of the contract? Contract law offers a variety of remedies designed to protect the reasonable expectations of the parties and, in some cases, to compensate them for actions taken to enforce the agreement.

As the injured party to a breach of contract, you might simply decide to cancel the contract and refuse to live up to your parts of the bargain, since the other party has not kept faith. Or you might decide to sue the other party for damages up to the amount you lost as a result of the breach. If money cannot repay the damage you suffered, you may demand specific performance — that the other party fulfill all the terms of the original contract.

For example

· you might simply cancel a contract for carpet shampoo­ing if the company's employee fails to show up to clean your carpet.

· you might sue for damages if you have to hire a differ­ent, more expensive caterer for your wedding recep­tion because the company you originally hired backed out at the last minute.

· you might demand that the owner of an antique Stutz Bearcat automobile sell you that car, as agreed - not a new Jaguar. In some cases, dissatisfied buyers have also found recourse in tort law.