When buying a condo or, realistically, almost any other large financial purchase, you can count on the fact that at least one (if not several) contracts will be involved in the process. However, many people may not know what a contract actually is.
Even if you do know what constitutes the basic elements of a contract, it helps to have a working knowledge of the legal terminology that is typically associated with general contracts in order to fully understand their rudimentary function. And while condo owners and those who maintain rental lease agreements may have more experience with contracts than those who don’t, contracts are nonetheless very much a part of every day life for most people (think: contracts with your cell phone company or signing a credit card slip after making a small purchase). What follows is intended to serve as an introduction to contract principals and, hopefully, provide some helpful information to individuals who want to know a little more about basic contract law.
What is a contract?
At its fundamental core, a contract is a legally binding agreement between two parties where a valid offer made by one party is accepted by the other, which is indicated by some mutual exchange of value. Under common contract law, this mutual exchange of value is called "consideration", which must be reasonably relied upon by both parties who agree to contract. Therefore, the three most fundamental elements of all legally valid contracts are offer, acceptance, and consideration.
What types of contracts are there?
There are a variety of legally viable contracts under current common law standards, not all of which must necessarily be in writing. A contract can be written, oral, or implied depending on the parties' actions at the time of the original contract formation. For example, a written document that claims to be a contract is often no more than evidence of the details of the contract, and not the contract itself. A valid contract offer must indicate a desire to enter into a contract (and thereby invite acceptance); should indicate a time period for acceptance; and must reasonably indicate that upon acceptance the contract will form without further approval from offeror. Here, it is the traditional practice in most situations to determine the details to which both parties agree and to transcribe the specifications into writing. This is particularly important if either party wishes to modify the contract at a later time.
In addition, signing a written document is not necessarily an act of acceptance that therefore creates a contract. If the parties have already reached an agreement the written document and signatures may be introduced to the courts as parole evidence of an already existing agreement, but may not determine the validity of the contract on its own. If, for example, the court determines that the original offer was in fact rejected or, if there was a counteroffer which was accepted but without any new consideration, the written and signed contract may prove not to be a contract at all.
Alternatively, if there is nothing in writing or if parts of a written contract are missing, a court may hold that there was an implied contract that existed between the parties and in this instance, a list of the complete terms is not always required. In real estate transactions, for example, an incomplete description of a property may still validate the terms of the contract where the intent of the parties would be used to clarify the specific obligations or missing information that was otherwise implied. On the other hand, to be enforceable, a property sales contract must be written in some form (even if it is incomplete) and oral agreements to sell real estate are not legally binding. In real property contracts, the contract must identify the buyer, the seller and the property itself, even if some details are omitted. Lastly, a real estate contract must establish a purchase price and the terms of the sale in order to validate the agreement.
Finally, a contract can be either unilateral or bilateral in nature. A unilateral contract is a promise for an act where acceptance of the offer is synonymous with the performance of the act and thus, a contract is only created when the act itself is done. Until then, the offeror reserves the right to withdraw the offer. For example, if I offer to pay you $20.00 to jump into the mud, you can either accept my offer by jumping into the mud and I would owe you $20.00 or, if I decide that I would rather keep the money, I can choose to withdrawal my offer so long as you have yet to jump in.
A bilateral contract, in contrast, is a promise for a promise where, as soon as promises are exchanged, both parties are instantly bound by each promise respectively. The vast majority of contracts are bilateral. Here, if I promise to give you $20.00 and you promise to jump into the mud, the contract is accepted by this exchange of promises and not by the performance of the promises themselves.
So...what did we learn?
While there are many, many other legal constructs that are fundamental to basic contract law (all of which are best left to a legal or other certified professional who can advise you of your rights and responsibilities), the golden principals of all contract law include an offer, acceptance, and some consideration that can be reasonably relied upon by both parties in order to make the contract legally enforceable. While there are different kinds of contracts which include oral, written and implied contracts, all jurisdictions within the United States require that certain kinds of contracts, such as those involving real estate transactions, must be in writing and, in such cases, must identify the buyer, the seller, and the property itself, as well as the purchase price for the property.
Lastly, a contract can be either unilateral or bilateral and knowing the distinction between the two outlines the liability and responsibility that each party may or may not assume. One of the many benefits of living in a free market is that anyone who is legally competent to contract (save for juveniles and those who are legally defined as mentally incompetent) has the right to do so. This is a powerful right and one which must be used responsibly and knowledgeably. The more you know about these kinds of the contractual agreements, the more prepared you will be to make educated decisions when, and if, you decide to sign on the dotted line.
