Getting a contract signed is more involved than you may think. You can just sign on the dotted line of a contract, but you need to know what you are agreeing to. If you are not aware of all the different clauses and sections of a contract, you could end up on the wrong side of a breached contract.

The Basics of Business Contracts and Agreements

While a verbal contract is still considered legal, most all contracts are completed in writing. A contract is a very detailed tool that is used to make all the possibilities clear in an arrangement.

A contract needs to be clear, but it also needs to include specific criteria to ensure it can be enforced. An enforceable contract is one that can go to court if there is a dispute among the parties. If the essential components to a contract are not included, it cannot be enforced.

In general, most contracts will never go to court and could just as easily be in verbal form as long as there is not a reason it has to be written.

However, if something goes wrong in a contract, a written form is going to be the best way for all parties to back themselves up if it goes to court. If one party to the contract thinks the other party has done something to breach the contract, the harmed party can sue the other party. This is known as litigation and it will determine if there were any circumstances that would justify the breach. However, courts will only hear contracts that are valid.

Difference Between a Contract and an Agreement

A lot of people will use the words “agreement” and “contract” interchangeably. However, they are very different things. An agreement is defined as a mutual understanding among different parties regarding his or her rights and responsibilities. A contract is defined as two parties creating obligations both have to meet to make the deal enforceable.

In times of a dispute, a court will have to intervene and decide if the agreement is in fact a contract. For an agreement to be a contract, one party has to make an offer and it must be accepted by the other party.

A bargained exchange of commitments has to be given in return for a promise made. This is known legally as consideration. Also, a contract has to be completely defined for it to be enforced by the court.

Essentials of Business Contracts: Offer, Acceptance, and Mutual Consent

All contracts have to include a certain offer and the offer has to be accepted. All parties involved have to do so of his or her own free will. The parties cannot be forced or coerced in any way to sign a contract. The parties must also agree to all of the same terms.

These three conditions result in a binding agreement. if both parties or just one party is not seriously considering the terms of the contract, the contract will not exist. There should be something of value being exchanged between all parties. The item of value can be services, products, or money, but all parties have to contribute something to make it a contract.

Essentials of Business Contracts: Competence

All parties have to be of sound mind so that everyone understands that this is a serious transaction. No one can be:

  • a minor
  • under the influence of drugs or alcohol when the deal occurs
  • mentally handicapped

If one of the parties is not competent to sign off on a contract, it will not be considered valid and it can then be thrown away. It will be considered null and void and no one will be held to the contract.

Essentials of Business Contracts: Legal Purpose

A contract can only be made for legal transactions. It cannot involve anything illegal such as selling drugs or money laundering. It is not illegal to enter a contract that does not yet have all the components included. This just means that the contract will not be enforced in court.

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