Contracts 101: Fundamental Elements and the Basics

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In an ideal world, we’d be able to take everyone at their word and sleep soundly at night. We could make deals and trust that everybody involved will benefit from it, equally and fairly. But that is not the case. In reality, things are more complicated.

Contracts protect and hold persons involved accountable. By signing a contract, one is showing a gesture of good faith taking on and agreeing to the legal obligations expected of them.

In any agreement–be it for employment, property lease, or business–one should know the legal implications of being held liable. This starts by getting to know what a contract is, the general flow of the agreement, and what other things may crop up in the arrangement.

What Is a Contract?

A contract is a legally binding agreement between two or more parties. A contract gives individuals the obligation to do or not do specific things. Note that parties involved may be a person, a group of persons, or any other legal body.

Before going into detail, you should see to it that parties involved are qualified to enter into a contract and if the agreement is mutual to all parties. They must understand what is required of them and can commit to performing agreed actions.

For a contract to be enforceable, it must meet certain requirements. Now let’s start by looking at each one.

Consideration

A consideration is often referred to as a promise to accomplish an action or the promise not to do a certain thing in the future. But to put it simply, it is what can be gained by each party from the agreement.

The presence of consideration differentiates a contract from a gift. This protects anyone from one-sided promises. Having an agreed exchange of things of value does not just hold everyone accountable but is enforceable by law for them to follow through. Unlike a gift or a freely-given favor, no one can hold the other party accountable since there is no agreement and is given freely without consequence.

Offer and Acceptance

The dynamic between two or more parties regarding a contract starts when one makes an offer and the other accepts. An offer is made when one of the parties commits to do or abstain from doing a deed within the scope of time the contract is effective.

On the other hand, an acceptance is when the other party accepts the terms stated in the offer through words, actions, or conduct as required in the contract.

lawyer and client

Agreement

Parties have both understood and agreed to the terms stated in the contract. This is also called a ‘meeting of the minds.’ Parties are lawfully expected and bound to hold their end of the bargain.

There are many reasons to consider before landing on an agreement. When it comes to that, it pays to know some things, so you don’t walk into a discussion blind-sided. These are among some worth being aware of when examining contract deals.

Capability of Parties

Contracting parties must have the capacity to contract. But it can’t be just anyone, right?

Some groups of persons–specifically, minors and mentally incapacitated individuals–are assumed to be legally unable to take part in contracts. Because they do not hold the capability to enter into a contract, they have the ability to make a legal agreement they might’ve had voidable. Meaning, they can opt out since they aren’t legally bound to accomplish anything stated in the contract.

Oral or Written?

Though contracts may come in oral or written form, it is safer to have them in the latter form. Agreements that should be written may differ from state to state, but a written contract is safer as it serves as a record of what was legally agreed between parties. It will be proof of obligation, be it met or not. In the event of a contract breach, a written contract will definitely come in handy.

Breach of Contract

A contract breach happens when a party fails to fulfill its agreed-upon obligations according to the contract.

If an agreement is breached, parties may follow what is enforced in the contract as a consequence or may have a mediator to help iron out the issue. In some cases, disputes that are not reconciled this way may elevate into a lawsuit.

When in doubt, read up and look for sources online before making any big legal decision. However, it’s best to consult a professional. Contact your trusted civil attorney for questions and advice on contracts and more.

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