Basic Information on Business Contract Law
Basic information on business contract law includes the type of agreement, elements of the contract, and the validity of the contract.3 min read
2. Types of Business Agreements
3. Business Contracts and Business Agreements
4. Written vs. Verbal Contracts
Basic information on business contract law includes the type of agreement, elements of the contract, and the validity of the contract. Business contracts and business agreements are an important area of the law, as they keep business owners, customers, and clients from being taken advantage of.
Elements of a Valid Contract
The elements that are required to be a valid contract include the following:
- Offer and acceptance.
- Lawful consideration.
- Full capacity to enter a contract.
- An agreement that is not void.
- A written contract.
- Legal relationship.
The offer is what one party promises to another. The promise can be an agreement to do or not do something that has been accepted by the other party. When an acceptance is received, a binding contract is in place.
The consideration is a requirement in every contract and refers to the benefit each party will receive by entering into the contract. A consideration must be included for a contract to be legal, and without one, the contract will be voidable. The consideration does not have to be money; it can also be a promise, a service, or even agreeing to not do something.
The consideration must also be of legal purpose. This means that if the consideration involves illegal items or illegal activities, the contract is not valid. When the consideration is accepted, the contract is still not valid if one party is under duress or lacks the capacity to bargain properly.
Types of Business Agreements
The three types of business agreements are unilateral, bilateral, and partnership.
- Unilateral agreements occur when one party agrees to a promise that is not received by the other party. This is seen as an unsecured promise between the parties. The offerer is the party who promises for exchanging the good. The offeree is the party acting on the offer. This is considered a one-sided agreement.
- Bilateral agreements occur when two parties agree to a legally binding promise or agreement. This is the common method businesses use to show a promise to deliver products and services. An example of a bilateral agreement is the sale of a product in exchange for money that is agreed to by both parties.
Partnership agreements are used to between two parties or partners. This kind of document handles various aspects of the business, including the following:
- Terms related to profit and loss and capital.
- The name of the partnership.
- The purpose of the business.
- The terms of how the business will run.
Business Contracts and Business Agreements
A business contract is used to legally solidify terms of engagement between two parties who are in a business relationship. Creating a business contract removes any doubt or attempt at speculation. While verbal contracts have some legal precedence, written contracts provide much better protection. In the case of a breach of contract, a written business contract must include all required elements, including the consideration, to be valid. The written contract will also help in the defense should a breach of contract lawsuit be filed.
A business agreement is not enforceable by law and does not include a specific obligation on the part of either party. An example of a business agreement is when one party agrees to make a product for the other party, who agrees to pay for the product. When the first party sends a contract with details about pricing and payment details, and the second party agrees, it is now a business contract.
Written vs. Verbal Contracts
It is recommended that all contracts be written down in the event the contract is questioned and details of the contract must be shown. Verbal contracts are legally binding in some instances, but the burden of proof is much harder to meet. The exception is the ability to uphold short-term verbal business arrangements. Contracts that are not allowed to be verbal included pre-nuptial agreements or wills.
Creating a written contract is possible by using forms available on the Internet. While this option saves money for basic contracts, anything that is more complicated should be drafted by a lawyer. This will avoid future issues with the contract's validity. Also, not all contract templates cover all of the needs of your situation, and a lawyer can be sure the contract has all of the proper details in place.
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