An informal contract is any sort of contract that you enter into without any formal legal influence. A verbal agreement or a sales contract are two examples of informal contracts. It is important that you understand this type of contract before entering into one to avoid any issues if certain promises are not kept.

Informal Contract

An informal contract is a type of agreement that will not require any sort of legal intervention to be considered enforceable. They are different from formal contracts because they do not need to be sealed, witnessed, or written.

An informal contract is often called a social contract. This type of contract needs to be avoided if there is no trust with the other party you are contracting with. A verbal contract is considered informal and only works when the other party can be trusted to perform their contractual duties without a written assurance.

A sales contract is an informal contract that is most common. They are specific to every situation and will not always include specific legalities. For instance, a sales contract will not be the same when buying a used car versus a brand-new car.

It could also be different if two people were buying the same car but in a different color. Everyone’s contract will be completely different based on individual circumstances.

For it to be legally binding, an informal contract has to include mutual assent, offer and acceptance, and consideration. It is not based in formalities, but in the observation of people making promises and intent.

There are five main elements when forming an informal contract:

1.     Mutual assent

2.     Consideration or validation

3.     Two or more parties entering a contract

4.     Parties have to have legal rights to contract

5.     No statute or rules declaring a contract void

Other Types of Contracts

·      A bilateral contract is different than others in that they do not have any consideration, also known as money provided for contract security. It is based solely on promises and could or could not include a promise of specific performance. The most crucial part of a bilateral contract is that it requires all parties to benefit equally. Business deals typically have an exchange among two different parties. This means most contracts are bilateral.

·      A unilateral contract is a one-sided contract. One party will agree to perform without the promise that the other party will hold up its end of the bargain. These contracts are often avoided because it cannot be enforced until after the performance is done. When you enter a unilateral contract, you could perform thousands of dollars in work with no sure guarantee you will be paid. Homeowners insurance is a type of unilateral contract. You meet your end of the contract by paying your premium. The insurance company promises to take care of problems if they happen, but you will not get any money back if nothing happens to your home. This is considered one-sided because the company does not have to perform but you still have to pay each month.

·      A Formal contract is one that is written to be valid and enforceable. It is not considered legal unless specific language required by law is included. These contracts must be sealed and act as a negotiable instrument. A sealed contract is not used often today due to the lack of ability to make any changes to it. If you enter into a sealed contract you are bound by that contract unless amendments are included or the contract is destroyed. One example is a check that you write. It has to be destroyed to signal the end of the deal.  A personal or business check is considered a negotiable instrument, or a legal contract that lists the amount of a fixed payment.

·      An express contract is when all the terms are very clear and straightforward. There is no chance of misinterpretation, no matter if it is oral or written in form. There are no actions a party can take to have an effect on the contract’s validity.

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