Key Takeaways

  • A general contract establishes clear, enforceable obligations between parties and is vital in both personal and business transactions.
  • The core elements—offer, acceptance, consideration, legality, and capacity—must all be present for a contract to be valid.
  • Government contracts and service agreements follow the same foundational principles but often include extra compliance requirements.
  • A well-drafted general contract should also include dispute resolution, termination, and force majeure clauses.
  • Regularly reviewing and updating general contracts helps businesses stay compliant with evolving laws and industry standards.

General contracts are legal documents that outline the terms and conditions of an agreement and are signed by both parties involved. Small business owners should have a basic knowledge of contract law since they will likely enter into general contracts during the course of business. Even the most basic business agreements should be documented in writing and signed. 

A general contract clarifies the conditions of the agreement to make sure both parties have a clear understanding of what they are signing. This provides protection for both sides in case of breach of contract, and it increases satisfaction by cementing expectations and providing enforcement measures that bind both parties.

The negotiating and signing of a written contract is an important element in any successful business relationship, partnership, or deal. Having this document in place minimizes the possibility of errors and other misunderstandings to ensure that the relationship is profitable and successful for both parties.

A general contract for services, sometimes called a service agreement, is used to define the services provided by one business and received by an individual or other business. This document should record the price of the services, their duration, what obligations they include, and other key details. 

Dos and Don'ts

The following tips for general business contacts will help protect your business and strengthen your relationships:

  • Establish goals for the agreement before writing a contract. The intentions of both parties should be understood before they are permanently recorded.
  • Provide several days for each party to review and sign the agreement, including time to answer questions if required.
  • Before exchanging money or providing or accepting goods or services, make sure the contract is signed.
  • Provide one signed copy to the other party and keep one in your records.
  • Create an accessible, organized file for all your important business documents.
  • Have the agreement witness or notarized.
  • Err on the side of being over-inclusive rather than under-inclusive when it comes to writing the contract. All terms and expectations should be explicitly stated.
  • If your agreement is very complex, retain the services of a business attorney to help you draft a contract.

Essential Elements of a General Contract

A "general contract" forms the basis of most agreements, ensuring that all parties understand their rights and obligations. While each contract may vary, some essential elements are universally necessary for a legally binding general contract:

  1. Offer and Acceptance: The contract must include a clear offer made by one party and an acceptance of that offer by another. Both parties must agree to the terms presented without ambiguity.
  2. Consideration: This is the value exchanged between the contracting parties. It could be in the form of money, services, or goods. Each party must contribute something of value to make the contract enforceable.
  3. Capacity: All parties involved must have the legal capacity to enter into a contract. This means they should be of legal age, sound mind, and not under any influence that impairs their judgment.
  4. Legality: The contract's purpose must be lawful. A contract involving illegal activities, such as unlicensed gambling or drug trafficking, is not enforceable.
  5. Mutual Consent: All parties must mutually agree to the terms, demonstrating a "meeting of the minds." This means each party fully understands the terms and intends to enter into the contract.
  6. Written or Oral Form: General contracts can be written or oral, though written contracts are easier to enforce. In certain cases, such as real estate transactions, contracts must be in writing to be legally valid.
  7. Specificity of Terms: A valid general contract must clearly outline the obligations, rights, and expectations of each party, minimizing potential disputes.

Key Principles Behind Enforceable General Contracts

For a general contract to be enforceable, it must satisfy both legal and practical principles. Courts interpret these principles using the objective theory of contracts, which examines what a reasonable person would believe based on the parties’ actions, not just their intentions.In addition, contracts are guided by:

  • Mutuality of Obligation: Each party must be bound to perform; otherwise, the contract may be void for lack of reciprocity.
  • Certainty and Completeness: The terms must be specific enough for courts to enforce; vague promises are typically unenforceable.
  • Good Faith and Fair Dealing: U.S. contract law implies this covenant in all agreements, requiring honesty and fairness during performance and enforcement.

These principles ensure that contracts are both legally valid and commercially practical, protecting the expectations of all parties involved.

General Agreement Instructions

These are the provisions that are typically included in a general contract.

  • Introduction of Parties: the full legal names of the parties are listed along with designation of how they will be referred to in the remainder of the document (Party One and Party Two, for example). This section also includes the date.
  • Section 1 -- Party One Obligations: This details the goods, services, payment, or transfer of property that Party One agrees to provide party two. These obligations should be thoroughly delineated in clear, specific language.
  • Section 2 -- Party Two Obligations: Repeat the process of Section 1 with the obligations that Party Two agrees to provide to Party One.
  • Section 3 -- Representation and Warranties of the Parties:  This section is optional and lists any additional assumptions, understandings, promises, and provisions that must be included, such as quality standards or guarantees.
  • Section 4 -- Additional Terms: This section should include any further information, such as the promise to protect confidential information.
  • Section 5 -- Arbitration: This section is optional and promises that in the event of a dispute, the parties will resolve it by binding arbitration instead of court litigation. With arbitration, a neutral third party reviews the terms of the agreement and the circumstances of the dispute and provides a binding decision.
  • Section 6 -- General Provisions: These subsections include universal general contract language.
  • Section 6A -- Notices: Includes addresses to which legal and other official correspondence can be delivered.
  • Section 6B -- Successors and Assigns: Indicates that both parties need prior written consent of the other to transfer their obligations under the contract.
  • Section 6C -- Waiver and Amendment: States that any changes to the contract must be made in writing and signed by both parties.
  • Section 6D -- Entire Agreement: Avers that no other agreements about the issues in question will be honored.
  • Section 6E -- Severability: Protects the entire agreement even if certain parts are found to be invalid.
  • Section 6F -- Governing Law: Allows those involved in the agreement to indicate the state laws that should be used to interpret it.
  • Section 6G -- Voluntary Execution of the Agreement: Notes that all parties to the agreement have been given sufficient time to review and understand it, including review by legal counsel if applicable.
  • Section 6H -- Counterparts/Electronic Signatures: This indicates that even if the contract has been signed electronically, it remains legally binding.

Common Types of General Contracts

General contracts are used in a wide variety of contexts. Some common types include:

  • Service Contracts: These involve the provision of services from one party to another, detailing the scope of work, payment terms, and timelines.
  • Sales Contracts: Used for the sale of goods, these contracts outline the items being sold, the price, and any warranties or guarantees.
  • Construction Contracts: These agreements define the relationship between a property owner and a contractor, detailing the work to be completed, materials to be used, and payment schedules.
  • Lease Agreements: A form of contract that outlines the terms under which one party agrees to rent property from another.

Understanding the various types of general contracts can help individuals and businesses select the right kind of agreement for their needs.

Specialized Forms of General Contracts

Beyond the standard service and sales contracts, businesses often rely on specialized general contracts to manage specific relationships:

  1. Government Contracts: These agreements involve entities doing business with federal or state agencies. They must comply with strict procurement regulations, such as the Federal Acquisition Regulation (FAR) system. Noncompliance can lead to severe penalties, suspension, or loss of eligibility for future bids.
  2. Employment Agreements: Outline terms of employment, compensation, confidentiality, and non-compete clauses. These are among the most common general contracts in business.
  3. Joint Venture or Partnership Agreements: Used when two or more entities collaborate on a project. They define contributions, management duties, and profit-sharing structures.
  4. Licensing and Intellectual Property Contracts: Clarify the scope of permitted use of a trademark, patent, or copyright and protect ownership rights.

Each type of general contract serves a distinct function but shares a common goal: defining responsibilities and minimizing legal risk.

Negotiating and Drafting General Contracts

The negotiation phase is crucial in drafting a comprehensive general contract. Here are key steps to consider:

  1. Define the Scope: Clearly outline what each party expects to give and receive. Ensure that every detail, including timelines, deliverables, and payment terms, is well-documented.
  2. Address Potential Risks: Discuss and include clauses related to potential risks, such as delays, damage, or failure to perform. Including indemnity and liability clauses can safeguard both parties.
  3. Incorporate a Dispute Resolution Clause: To avoid lengthy legal battles, contracts often include clauses specifying the method for resolving disputes, such as mediation, arbitration, or litigation.
  4. Review and Amend: Before signing, ensure both parties thoroughly review the contract. It’s advisable to have an attorney review the document to ensure that it is legally sound and that no critical elements are missing.

Essential Clauses to Include in General Contracts

When drafting a general contract, including clear and comprehensive clauses can prevent future disputes. Essential provisions include:

  • Confidentiality Clause: Protects sensitive information shared between parties during and after the contract term.
  • Indemnification Clause: Ensures one party compensates the other for certain losses or damages arising from the agreement.
  • Force Majeure Clause: Excuses performance when unforeseen events (natural disasters, wars, pandemics) make it impossible to fulfill obligations.
  • Termination Clause: Defines when and how either party can terminate the agreement without breaching the contract.
  • Amendment Procedure: Specifies how modifications must be documented and signed.

By addressing these points early, businesses ensure clarity and reduce costly litigation risk.

Common Mistakes to Avoid in General Contracts

While drafting or entering into a general contract, avoid these common pitfalls:

  • Lack of Specificity: Vague terms can lead to misunderstandings and disputes. Always be specific about the roles, responsibilities, and expectations of each party.
  • Ignoring Jurisdictional Requirements: Legal requirements for contracts can vary by jurisdiction. Ensure that your contract complies with local laws to be enforceable.
  • Overlooking Renewal and Termination Clauses: Contracts should specify the duration of the agreement and the conditions for renewal or termination. Not addressing these elements can lead to unintended obligations.
  • Failure to Keep Written Records: Oral contracts are legally binding but difficult to enforce. Always aim for a written contract, especially for agreements involving significant obligations or high-value transactions.

How to Modify or Cancel a General Contract

Modifying or canceling a general contract requires careful consideration:

  1. Mutual Agreement: Both parties must consent to any modifications or cancellation of the contract. This is usually done through an addendum or a new contract outlining the changes.
  2. Written Modifications: Ensure that modifications are in writing and signed by both parties. This helps to avoid future disputes over the changes made.
  3. Cancellation Clauses: Some contracts include a "termination for convenience" clause, allowing one or both parties to cancel the contract under specific conditions. Ensure you understand these conditions before signing.

If either party wishes to cancel the contract outside of the agreed terms, they may face legal consequences, such as damages for breach of contract.

Enforcing a General Contract in Case of Breach

If one party fails to uphold their contractual duties, the non-breaching party may seek legal remedies to enforce the general contract. Common remedies include:

  • Damages: Monetary compensation for financial losses resulting from the breach.
  • Specific Performance: A court order requiring the breaching party to fulfill their contractual obligations—common in real estate or unique goods cases.
  • Rescission: The contract is canceled, and both parties return to their pre-contract positions.
  • Restitution: Ensures the injured party is restored to the position they were in before the breach occurred.

Before pursuing litigation, many parties choose alternative dispute resolution (ADR) methods like mediation or arbitration to resolve disputes more efficiently and privately.

Frequently Asked Questions

  1. What makes a general contract legally binding?
    A general contract is binding when it includes an offer, acceptance, consideration, legality, capacity, and mutual intent to create a legal relationship.
  2. Can a general contract be enforced if it’s not in writing?
    Yes, oral contracts are enforceable in many cases, but written agreements provide stronger evidence and are required for certain transactions like real estate.
  3. What happens if one party breaches a general contract?
    The non-breaching party may seek remedies such as damages, specific performance, or contract cancellation depending on the nature of the breach.
  4. Are government contracts different from general contracts?
    Yes. Government contracts follow unique procurement laws, such as the FAR, and include compliance and audit requirements not found in private contracts.
  5. How can I protect my business when drafting a general contract?
    Include detailed clauses on confidentiality, termination, dispute resolution, and indemnification. It’s also advisable to consult a qualified attorney through UpCounsel for tailored guidance.

If you need help with general contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.