What is a Contract?

Contracts are agreements that the law will enforce. Contracts are individual, or private, rights and duties created by oral or written agreement and consent of the parties. Contracts may include obligations imposed by law even if the parties are not aware of those obligations.

What are the Different Types of Contracts?

Express Contract: The promises are communicated by language, either oral or written. Example: John promises to paint Dan’s car in return for Dan’s promise to pay him $100.

Implied Contract: The conduct of the parties indicates that they consented to be bound. Example: Toni fills her car with gas at Tina’s gas station. There is a contract for the purchase and sale of gas.

Unilateral Contract: A person accepts an offer by performing a requested act. The terms of the offer must clearly indicate that an act is required for acceptance. Example: John tells Dan that he will pay Dan $100 if Dan paints his car and that Dan should show acceptance of the offer by the act of painting the car. Dan accepts by painting the car.

Bilateral Contract: A person accepts an offer by promising to do the requested act. Example: Red Company offers to buy 100 widgets from Green Company for $100. Green Company promises to deliver the 100 widgets to Red Company.

Five Essential Elements

The essential elements of a contract in Missouri are: “(1) competency of the parties to contract; (2) subject matter; (3) legal consideration; (4) mutuality of agreement; and (5) mutuality of obligation.”  Hyatt v. Trans World Airlines, Inc.,943 S.W.2d 292, 296 (Mo.App.1997); Shapiro v. Butterfield, 921 S.W.2d 649, 652 (Mo.App.1996); Cash v. Benward, 873 S.W.2d 913, 916 (Mo.App.1994).

A valid contract must include an offer, an acceptance, and consideration. Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661, 662 (Mo. banc 1988). "[A] promise to do that which one is already legally obligated to do cannot serve as consideration for a contract." Wilson v. Midstate Industries, Inc., 777 S.W.2d 310, 314 (Mo.App.1989)(quoting City of Bellefontaine Neighbors v. J.J. Kelley R. & B. Co., 460 S.W.2d 298, 301 (Mo.App. 1970)).

An agreement must contain five essential elements to be regarded as a contract. If any one of them is missing, the agreement will not be legally binding.

Competency of the Parties

Who Can Enter into a Contract? Minors (individuals under age 18) and people who are mentally incompetent do not have the legal capacity to enter into contracts. All other people are considered to have the legal capacity to enter into contracts. In Missouri and most states, the legal age for entering into contracts is 18 (see ). A contract between a minor and an adult may be canceled upon request of the minor, but is binding on the adult. The test for mental capacity to enter into a contract is whether the person had the ability to understand the nature and consequences of the agreement.

Corporations have the power to enter into contracts through the acts of their agents, officers, and authorized employees. Generally, individuals associated with the corporation are not held personally responsible for the corporation’s debts and liabilities, including liability for breach of contract, although there are some exceptions.

Subject Matter

The "subject matter" of a contract is the goods or services for which
the parties have bargained, one party providing the goods or services in exchange for something else. A contract is legally binding only if its terms are sufficiently defined to enable a court to understand the parties’ obligations.

Offer

There must be a definite, clearly stated offer to do something. For example, A quotation by sub-contractor to the main contractor and an offer to lease.

An offer does not include ballpark estimates, requests for proposals, expressions of interest, or letters of intent.

An offer will lapse:

• when the time for acceptance expires;
• if the offer is withdrawn before it is accepted; or
• after a reasonable time in the circumstances (generally, the greater the value of the contract, the longer the life of the offer).

Acceptance

Only what is offered can be accepted. This means that the offer must be accepted exactly as offered without conditions. If any new terms are suggested this is regarded as a counter offer which can be accepted or rejected.

There can be many offers and counteroffers before there is an agreement. It is not important who makes the final offer, it is the acceptance of that offer that brings the negotiations to an end by establishing the terms and conditions of the contract.

Acceptance can be given verbally, in writing, or inferred by action which clearly indicates acceptance (performance of the contract). In any case, the acceptance must conform with the method prescribed by the offerer for it to be effective.

Mutuality (Intent)

“Mutuality of agreement is determined by looking to the intentions of the parties as expressed or manifested in their words or acts.” Ketcherside v. McLane, 118 S.W.3d 631, 636 (Mo.App. S.D.2003) The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract. A contract requires that the parties intend to enter into a legally binding agreement. That is, the parties entering into the contract must intend to create legal relations and must understand that the agreement can be enforced by law.

The intention to create legal relations is presumed, so the contract doesn't have to expressly state that you understand and intend legal consequences to follow.

If the parties to a contract decide not to be legally bound, this must be clearly stated in the contract for it not to be legally enforceable.

Consideration

In order for a contract to be binding it must be supported by valuable consideration. That is to say, one party promises to do something in return for a promise from the other party to provide a benefit of value (the consideration)

Consideration is what each party gives to the other as the agreed price for the other's promises. Usually, the consideration is the payment of money but it need not be; it can be anything of value including the promise not to do something, or to refrain from exercising some right.

The payment doesn't need to be a fair payment. The courts will not intervene where one party has made a hard bargain unless fraud, duress or unconscionable conduct is involved.

The existence of consideration distinguishes a contract from a gift. A gift is a voluntary and gratuitous transfer of property from one person to another, without something of value promised in return. Failure to follow through on a promise to make a gift is not enforceable as a breach of contract because there is no consideration for the promise.

Does a Contract Have to be Written?

In general, there is no requirement that a contract must be in writing. Although the Statute of Frauds requires certain types of contracts to be in writing (See RSMO 432 and RSMO 400.2-201), Missouri recognizes and enforces oral contracts in some situations where the Statute of Frauds does not apply.

How Is a Contract Interpreted?

The court reads the contract as a whole and according to the ordinary meaning of the words. Generally, the meaning of a contract is determined by looking at the intentions of the parties at the time of the contract’s creation. When the intention of the parties is unclear, courts look to any custom and usage in a particular business and in a particular locale that might help determine the intention. For oral contracts, courts may determine the intention of the parties by considering the circumstances of the contract’s formation, as well as the course of dealing between the parties.

In interpreting a contract, we look first to the language in the contract to ascertain the intent of the parties. Finova Cap. Corp. v. Ream, 230 S.W.3d 35, 42 (Mo.App.2007).

BREACH OF CONTRACT