Parts of a Contract: Everything You Need to Know
A contract may not be legally enforceable if it does not include certain key elements. 3 min read
The various parts of a contract are typically referred to as "elements." A contract may not be legally enforceable if it does not include certain key elements.
What Is a Contract?
At its most basic, a contract is an agreement between two parties. From selling or leasing a property, settling disputes, or setting up an independent contractor or employee, agreements are joined into every day.
When two parties come to an agreement, a contract is made. A contract can be oral (alternately known as verbal). However, proof of the oral agreement must be provided in order for courts to enforce the contract. A contract can also be written and signed, showing the provisions agreed to by both parties. A signed, written contract provides less risk when enforcement is needed.
Unilateral and bilateral describe two types of contracts:
- Unilateral: a contract that involves a request that can only be satisfied by the other party's performance.
- Bilateral: a contract that is satisfied by mutual promises of the parties involved.
The Statute of Frauds is a law that states that certain contract types must be in writing to avoid fraud or perjury of an individual offering proof of an agreement that does not exist. An example of the Statute of Frauds can be seen in a contract that executes the sale or transfer of land, which is only enforceable if it is in writing.
Land contracts are very particular in that they must note the buyer, the seller, the description of the property being sold, and the sale price and terms of the sale agreement. In some instances, an agreement may be upheld in court if the defendant admits the existence of a contract under oath.
Standard Contract Elements
A business contract is made up of several elements. These elements establish the details that create a legally binding contract and prevent any misunderstandings that are possible if a particular element is removed. Business contracts do not require a specific length to be valid. Nor do they need to be typed or written. Basic, handwritten contracts are enforceable.
- Document Title. "Sale Agreement," "Equipment Transfer," and "Purchase Agreement" are just three examples of document titles. The title should succulently state the purpose of the contract and be placed at the top of the document for easy reference.
- Preamble. The preamble is used to easily show important details of the document. These include the name of the agreement, the date of execution, and the involved parties. When businesses are the parties, the type of organization or entity will be listed.
- Parties. In a business contract, the first section will show the parties involved. When, for example, a small business is hiring a consulting firm, the contract will show that the small business is paying for this particular service. An owner or manager of the small business normally will be listed in the payee spot and the consulting firm is listed as the service company or supplier.
- Recitals. An optional form, called recitals, may be included to include background information to the agreement. Recitals can be a valuable resource for contract interpretation. They provide terms that show intent on the part of the parties.
- Agreement. The agreement legally called the consideration is a general statement of what is expected of the service or provider to fulfill the contract. The agreement is generally only a sentence or two in length.
Contracts also include the definition, action, terms, and more. Resources and attorneys from UpCounsel can help you expand upon these contract sections.
The Essentials Provisions of an Enforceable Contract
For a contract to be enforceable, the following elements must be included:
- Capacity. This refers to each party's ability to understand the terms of the contract.
- Offer. All essential elements are listed.
- Acceptance. Agreement to the terms is communicated.
- Competent parties. Both parties are competent to enter into a contract
- Lawful subject matter. The contract does not violate any laws
- Mutuality of obligation. Both parties have a common intention
- Consideration. This refers to the contract price, which is not always monetary.
- Agreement. A "meeting of the minds" should indicate a mutual agreement.
- Legality. A contract can become void if either party acts in an illegal fashion
If you need help with understanding parts of a contract, you can post your job 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.