Forms of Contract in Business Law
Forms of contract in business law come in various types and classifications.3 min read
Forms of contract in business law come in various types and classifications. At the base level, a contract is a written agreement between two or more parties to provide a service or product. Contracts are enforceable by law and must meet specific criteria to be valid.
Types and Classifications of Business Law Contracts
Contracts in business are used to document the service, sale, or transfer of ownership of a product or property. The parties that take part in a contract can be corporations, partnerships, individuals, and governments. Business law contracts are classified based on four criteria:
- Nature of consideration
The criteria are then broken out into types.
Formation contracts are classified into three types:
- Express contracts, which include expression of conversation in the contract.
- Quasi-contracts do not include an offer or acceptance which results in there not being a contractual relationship between partners.
- Implied contracts that have no expression.
Nature of consideration contracts are classified into two sections:
- Bilateral contracts contain a consideration that is moved in both directions after the contract.
- Unilateral contracts contain a consideration that is moved in one direction after the contract.
Execution contracts are classified into two types:
- Executed is when the performance is completed.
- Executor states that any contractual obligations in the future will take place.
Validity contracts are classified into four groups:
- Valid means the contract is enforceable in a court of law.
- Void means the contract is not enforceable in a court of law.
- Illegal means the contract has an illegal purpose.
- Unenforceable means the contract was not legally filed and formalities were not followed.
Forming a Contract
To form a contract it must include an offer, acceptance of the offer, and a form of consideration that offers a financial benefit for completion of the contract. Contracts document the obligations negotiated between two or more parties that are legally enforceable.
To create a valid contract, it must include:
- Offer and acceptance
- Intent to create a legal relationship
- Lawful consideration
- Parties are of full mental capacity
- Genuine and free consent
- Legal purpose
- Confirmation of ability to complete tasks listed in the contract
- The contract is not void
Common Contract Types
- Sales Contracts: A sales contract is used to document the transfer of ownership, including goods, services, or property. State law determines if the sales contract must be in written form. Other terms for sales contracts include a purchase order, bill of sale, or warranty.
- Lease Agreements: Lease agreements stipulate the conditions when two parties (landlord-tenant) agree to the use of a property. Lease agreements for commercial real estate properties will differ with a higher number of terms, while residential properties must meet the state minimum requirements for habitation. Equipment that is too expensive to purchase can also use a lease agreement.
- Employment Agreements: Employment agreements are used to set terms related to employment, compensation terms, benefits, and a noncompete clause. These agreements can be oral, but written is preferred as they are more enforceable.
- Nondisclosure Agreements: Nondisclosure agreements, alternately called a confidentiality agreement, are between an employee and their employer. The agreement is designed to prevent proprietary information from being shared with competitors or publicly.
- Government Contracts: Federal government contracts fall under three types that are used for the acquisition of services or property from private parties, nonprofits, or state and local governments. The types are procurement contracts, federal grants, and cooperative agreements.
- Option Contracts: Option contracts gives one party the right to purchase certain rights for a preset amount of money at a future time.
Example of Contract in Business
In photography, a photographer will create a contract that states the expectations and responsibilities of the photographer and the client. A photography contract will include the names of all associated parties, the agreed upon cost, payment terms in regards to form of payment and due date, what services will be provided, turnaround time, cancellation policies, deposit amount, and copyright. Other terms can be included as necessary.
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