CONTRACTS
6. Contract, Defined and Discussed. A contract has been defined to be an agreement between two or more competent parties, enforceable in a court of law, and based upon a sufficient consideration, to do or not to do a particular thing.
The law relating to contracts is the most important, as well as the most extensive, branch of commercial law. It touches, directly or indirectly, most of the dealings of men. It is the legal basis of all business transactions.
In the daily routine of their life, most families make many contracts. By reading the morning paper left at his door, a person impliedly agrees to pay the publisher the customary price. By ordering the daily supply of groceries by telephone, the housewife impliedly contracts to pay for their value, upon delivery, or at the customary time of payment. By purchasing a number of car tickets from the street car conductor, a person makes a contract. By ordering a lunch, a person impliedly agrees to pay the customary price. In the more important business transactions, formal contracts are written out and signed. In these transactions the parties endeavor to define their duties and obligations clearly and expressly, in order that they may understand each other and in order that neither can dishonestly claim that the contract contains a certain provision or condition. Contracts are legal or illegal, void or voidable, depending upon their form and nature. An understanding of the necessary elements of valid contract is the foundation, to the understanding of commercial law.
7. Offer, Acceptance and Agreement. To constitute a transaction a valid contract, there must be an offer on the one hand, and an acceptance on the other. This necessitates at least two parties to every contract. One must make a proposition, the other must accept it. The acceptance must be of the exact terms of the offer, to constitute a legal acceptance. If the attempted acceptance is not made in the precise terms of the offer, it constitutes a counter offer, which, to constitute a contract must, in turn, be accepted by the original offeror.
If A offers B one hundred dollars for B's horse, and B in turn agrees to take one hundred dollars, the transaction constitutes a valid contract. If A offers B one hundred dollars for B's horse, and B in turn offers to sell the horse for one hundred and twenty dollars, the transaction does not constitute a contract, for the reason that A's offer has not been accepted. B, however, makes a counter offer, which if not assented to by A, constitutes no contract. If, however, A agrees to accept B's offer to sell the horse for one hundred and twenty dollars, this constitutes a valid contract, in which B is the offeror and A the acceptor. These counter offers in response to offers may go on indefinitely without constituting contracts. So long as the response to the offer varies the terms of the offer, it constitutes a counter offer, and not an acceptance. To constitute an acceptance, the exact terms of the offer must be agreed to.
Courts lay down the principle that there must be a meeting of the minds of the contracting parties, to constitute the transaction a valid contract. This means that the offer must be accepted in its precise terms. The minds of the contracting parties cannot meet, unless the acceptance is of the exact terms of the offer. This principle is sometimes called mutuality. An acceptance must be communicated to the offeror. A mere mental operation, or an attempted acceptance, not communicated to the offeror, does not constitute a legal acceptance.
The offer, or acceptance, may be in the form of an act as well as by verbal or written communication. If a person orders a barrel of flour of his grocer, the order constitutes the offer, and the delivery of the flour and the receipt of same by the purchaser, constitutes the acceptance. The purchaser is bound to pay the market price for the flour, regardless of the fact that the price has not been mentioned.
An offer can be recalled at any time before acceptance. To recall an offer, the offeror must communicate his intention so to do, to the acceptor before acceptance. Agreements to hold offers open for a stipulated time are recognized. These options are, in themselves contracts, and to be binding must contain all the essential elements of a contract.
An offer which has been accepted constitutes an agreement. An agreement, as the word suggests, means a meeting of the minds of two or more parties. The word is frequently used as synonymous with contract, but it is merely an element of a contract. While there must be an agreement in every contract, an agreement of itself does not constitute a contract. There may be an agreement between persons under legal age, but this agreement does not constitute a contract.