CONTRACT

agreement entered into voluntarily by two or more parties who promise to exchange money, goods, or services according to a specified schedule. A simple purchase is effected as soon as each party has what it wantsusually money on one side and goods or services on the otherand hence a contract is unnecessary. More complicated and time-consuming transactions call for an agreement consisting of reciprocal promises that form the contract and that will remain in force until all parties are satisfied. Failure to honour a contract allows the other party to bring an action for damages in a court of law. Enforcement of good faith in matters of contract is considered among the most important functions of legal justice. In establishing contract law, society attempts to maintain standards of fairness and social utility. On the one hand, a community functions best if everyone lives up to his promises; on the other hand, nonperformance of one's promise must be shown to have caused damage before it can be judged deserving of punishment. A contract is said to exist when an offer is made and then accepted. Words of promise uttered before there is a consideration for them can be no more than an offer. Furthermore, the obligation of an offer remains open until either it is accepted by the other party to the contract or the offerer rejects the offer prior to acceptance. An offer generally cannot be rejected once it has been accepted. All contracts must be entered into both willingly and freely. A contract may be declared unenforceable if it violates this principle. Also, legal minors, the insane, and others viewed by the law as unable to care for themselves are usually forbidden from signing contracts, on the grounds that they may too easily be taken advantage of. Society, looking to its own general welfare, often forbids contracts that result in restraint of trade. And it goes without saying that agreements cannot be enforced when their performance violates the law. Even without such reasons for not enforcing a contract, the consent of a contracting party may still not be binding if the party can demonstrate that the proposal was essentially fraudulent. For example, a legal transfer of title for land may be voided and the money returned if it can be shown that what is actually swamp was represented as a suitable site for a dwelling. Such a contract may be voided for reason of misrepresentation (if not fraud) even if the seller can prove that he himself was unaware of the true state of affairs. Contracts may also be nullified in the case of so-called acts of God (i.e., natural disasters) or in times of political unrest or war that make performance of the promises impossible. Because it is in the nature of a contractual agreement to be quid pro quo, contract law usually demands that an exchange be transacted. Thus, a written promise to give property, with no price stipulated, can be held unenforceable by the courts. This possibility is generally avoided by the exchange of an object of real value (the disguised gift) for what is called nominal consideration: one dollar or even one peppercorn. When the terms of fulfilling a contract are brought into disputeas often happens in modern multiparty agreementsthe disputants may decide to submit their differences to private, but binding, arbitration, believing that public litigation would be disadvantageous to all parties. In this way, trade secrets can be kept private, and disputes that could prove embarrassing can be kept from public records. However, on the whole, most contract actions are brought in regular courts of law that decide the terms of the contract and the rights and obligations of each party, assessing damages where called for. in the simplest definition, a promise enforceable by law. The promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another accepting. If one of the parties fails to keep the promise, the other is entitled to legal recourse. The law of contracts considers such questions as whether a contract exists, what the meaning of it is, whether a contract has been broken, and what compensation is due the injured party. Additional reading E. Allan Farnsworth, The Past of Promise: An Historical Introduction to Contract, Columbia Law Review, 69(4):576607 (April 1969), is a survey of the development of contract law from its beginnings in primitive societies. C.H.S. Fifoot, History and Sources of the Common Law: Tort and Contract (1949, reprinted 1970), is a historical treatment of the common law of contract. Treatises on Anglo-American contract law include: John D. Calamari and Joseph M. Perillo, The Law of Contracts, 3rd ed. (1987); G.C. Cheshire and C.H.S. Fifoot, Cheshire and Fifoot's Law of Contract, 10th ed. by M.P. Furmston (1981); Arthur Linton Corbin, Corbin on Contracts: A Comprehensive Treatise on the Rules of Contract Law, 8 vol. in 12 (195051); and Samuel Williston, A Treatise on the Law of Contracts, 18 vol., 3rd ed. by Walter H.E. Jaeger (195778). A discussion of French and German contract law is found in Arthur Taylor Von Mehren and James Russell Gordley, The Civil Law System, 2nd ed. (1977). A classic discussion of the law of contract damages is found in L.L. Fuller and William R. Perdue, Jr., The Reliance Interest in Contract Damages, parts 1 and 2, Yale Law Journal, 46(1):5296 (November 1936), and 46(3):373420 (January 1937). See also Hans Smit, Nina M. Galston, and Serge L. Levitsky, International Contracts (1981). Arthur Taylor von Mehren