WHAT IS A CONTRACT?

In simple terms, a contract is created when two or more parties promise one another to do something (or not to do something). If all the legal requirements exist, the contract is enforceable in court. Often, “doing something” means paying money. For example, you promise to deliver a pizza to my office, and I promise to pay you $16 upon delivery. The payment is called the “consideration.” Once we have both expressed our promises, the terms of the contract are set. Once you start assembling the ingredients for my pizza, you have “relied” on my promise, and I am obligated to pay you at least part of the agreed-upon price.

The Formal Requirements of a Contract

Offer, acceptance, and consideration. In lawyer-speak, we say that there must be an offer (“Deluxe Pizza $16 - Call Now”), acceptance (“Hello, I’d like to have a deluxe pizza delivered to my office”), and consideration (my payment, your ingredients and effort in preparing the pizza). Other requirements are that (1) the parties must be legally capable of entering into a contract (a child is not, for example), and (2) formalities.

Not All Contracts Need to Be in Writing

Many people believe they have not entered into a binding contract unless there is a written agreement. However, not every contract needs to be in writing. In the pizza example I used above, I’d be legally obligated to pay you without any written agreement. Even very large and complex agreements can be legally binding without being written down.

Contracts Involving Real Estate DO Need to Be in Writing

In Michigan, contracts involving the sale or lease of real estate must be in writing to be enforceable. The law that creates this requirement is called the “Statute of Frauds.” The idea behind the Statute of Frauds is that real estate agreements are too specific and important to be binding orally. Most of the time, to be fully enforceable, real estate documents such as titles, mortgages, and land contracts must also be filed with the Register of Deeds in the same county where the real estate is located.