Contracts 101: Everything You Need to Know
Contracts 101 will tell you everything you need to know about the world of contracts.3 min read
Contracts 101 will tell you everything you need to know about the world of contracts. Such agreements are a normal part of doing business, and occur everyday between different parties.
A contract is an agreement, either oral or written, that two or more people enter into. The contract usually includes several elements, including the following:
- Introductory material, which are usually known as recitals
- Definitions of the key terms identified in the contract
- The purpose of the contract
- The duty of each party, and what their responsibility and obligations are
- Assurances, including warranties, representations, and covenants
- Boilerplate provisions
- Applicable attachments
Elements of a Contract
All contracts contain the same elements, including the offer, acceptance, and consideration. Regarding consideration, there must be something of value exchanged – cash, goods, or a promise to exchange such cash or goods. Keep in mind that if the contract doesn’t have a deadline date, then the contract will be open for a reasonable length of time.
However, what is considered reasonable can be viewed differently, and it will vary depending on the type of service or product being offered. Therefore, in order to prevent any potential disputes or confusion, you should have an expiration date in the contract.
First, you’ll have an offer. Thereafter, the other party must accept the offer. The offer isn’t automatically accepted just because the other party hasn’t expressly rejected it. There are different levels of the acceptance. A unilateral contract has an acceptance that is based on the actual performance or non-performance of some sort of task. A bilateral contract, however, is accepted once the promise is made (consideration stage).
Keep in mind that contracts shouldn’t be arbitrary, and there should be a reason to enter into the contract.
The parties could also include a non-disclosure clause in the contract, which indicates that sharing any information in the contract might otherwise invalidate the contract.
The purpose of the actual contract cannot violate law. Generally, contracts must be mutual, and as usually identified, there must be a “meeting of the minds” between both parties. The contract itself must specify all expectations of both parties in order to avoid any confusion and potential invalidation of the contract.
Everyone entering into the contract must be legally able to do so. Therefore, if the party is mentally disabled, bankruptcy, or under the age of 18, then the person cannot enter into the contract. Furthermore, both parties must have the authority to enter into the contract. For example, John cannot sell Mark’s car unless John has explicit permission to do so.
Written vs. Oral Contract
While an oral contract is essentially a verbal agreement, it can be enforced in certain circumstances. However, certain states require that the contract be in writing in order for it to be legally enforceable.
Under the ‘statute of frauds,’ a verbal agreement can be deemed invalid and unenforceable, which is why it is so important to have a written contract. A contract can be either express or implied. A written contract is usually referred to as an express contract, meaning that the obligations of both parties are clearly identified in the contract.
Certain situations in which an express written contract is required include the transfer and sale of property, sale of goods or services that are valued at more than $500, or if the contract wil take more than one year to perform.
However, implied contracts are also allowed. For example, let’s assume you order a drink from a coffee shop. Once you order, you just entered into an oral contract with the barista taking your order. Furthermore, by ordering the drink, it is expected that you will pay for it. As such, the oral contract is implied, since it is assumed that the barista will make your drink in exchange for the appropriate payment.
You should look to your state’s laws to find out exactly what types of contracts must be in writing. However, even if oral agreements are allowed, it is beneficial to put your contract in writing to prevent issues down the line.
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