Contracts are the foundational elements of every business and human cooperation in society. They enable parties to come together and collaborate towards their specific desires and needs. They are official agreements that are enforceable by law. Therefore, a contract is a legal obligation.
Contracts can be oral or written, implied or expressed, depending on the situation at hand. While an oral contract (a verbal agreement made aloud in conversation) might suffice in some instances, most enforceable contracts should be expressly written into a tangible document.
What is a Contract?
A contract is either a written or spoken agreement between two or more parties that includes terms and conditions, which creates a legal obligation. The terms of a contract are enforceable by law, with clearly defined penalties and remedies should the contract be breached. A breach of contract is a failure, without legal excuse, to perform any parts of the contract.
A contract is created when there is an offer, consideration, and acceptance between two or more parties.
Different Types of Contracts
Contracts are used regularly by individuals as well as businesses. As a result, many different types of contracts are used in our everyday lives. Following is a list of commonly used contracts.
- Bilateral Contract
- Unilateral Contract
- Implied Contract
- Express Contract
- Simple Contract
Nearly every service you receive from a business requires a contract. Contracts often operate “under the radar.” Yet, as an individual, contracts are associated with various daily activities.
The following are five types of business contracts.
- Nondisclosure Agreement
- Partnership Agreement
- Indemnity Agreement
- Employment Contract
- Contractor Agreement
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4 Requirements for a Valid Contract
There are four elements of a contract. For the contract to be valid, all four elements must be present.
Offer
The first step towards a contract is an offer. One party offers to perform a service, sell a product, trade, or conduct some other business venture. An offer is valid so long as it is serious and has not been revoked by the offeror (i.e., “I hereby withdraw my offer”).
Acceptance
The party to whom the offer was made must now agree to the terms of the original offer. Any conditional acceptance or inclusion of additional terms is called a counteroffer. A counteroffer is, in effect, a rejection of the initial offer, and it starts the contract formation process all over again. But, just like for an offer, an acceptance must also be serious.
Consideration
Unless something of value is exchanged, contracts are not binding. Consideration can be in the form of money, a promise to perform an act or refrain from acting, or it can be for some other item of value. The element of consideration is the whole purpose for entering into a contract. For consideration, both parties must have some obligation under the contract. For example, one party pays, and the other party performs.
Capacity
Each party must reasonably assume that the other party has both the legal right and the ability to fulfill their end of a contract. They must also be able to fully understand (have the mental capacity) what their obligations will be at the time of agreement. For example, a person under the influence of alcohol or drugs lacks the capacity to enter into an agreement because they do not fully understand the obligations they are undertaking.
The elements of a contract set forth above are applicable for both oral and written contracts. However, certain types of contracts are required by law to be in written form.
Here is an article for more information.
Common Elements of a Contract
A contract must contain six essential elements to be enforceable:
- Offer. A promise by one party to another that they will or will not perform a specific action in the future. Example : I will pay you $3,500 to purchase your vehicle.
- Acceptance. Usually mirrors the terms of the offer. Acceptance is an expression, through words or deeds, that both parties agree to the terms of the contract.
- Awareness : Proof both parties clearly understand and agree to “the basic substance of the contract.”
- Consideration : Entails something of value promised in exchange for the actions (or nonactions) defined in the offer. The most common exchange is payment for goods delivered. This distinguishes a contract from a gift because it removes the voluntary nature of the act/non-act by requiring something of value in exchange for the promise.
- Capacity : Each signatory to the contract has demonstrated the “legal capacity” to understand what they are signing.
- Legality : All contracts are subject to the jurisdiction's laws under which they operate.
When Do I Need a Contract Lawyer?
Many situations may warrant a contract lawyer. In most cases, a contract is required for any business transaction. Having a contract lawyer to facilitate the contract process is a good idea. These scenarios may warrant a contract lawyer.
- You are a business using freelancers to work on behalf of your company.
- Your company is conserving merging with another company
- Another individual or company is interested in licensing products you have created.
- You are either the buyer, seller, or investor in a real estate transaction.
- You are renting or leasing a piece of property.
- You are an independent contractor (freelancer, gig worker, self-employed)
- You own a business and are looking for investors.
- Your business shares proprietary information and needs a nondisclosure agreement.
- You are an insurance business entering into an agreement with an organization that provides insurance benefits to its employees.
The above list does not include every scenario when you need to contact a contract lawyer. In brief, if you are entering into a legal situation where a contract is required, you should consider contacting a contract lawyer. A contract lawyer can help draft the document or review a contract that has already been drawn up and inform you whether you should sign the document or not.
A contract lawyer can fill knowledge gaps as well.
It is necessary to work with a contract lawyer if you want to make sure any contract you are entering into is valid, enforceable, has your best interests in mind, and enforceable in a court of law. An experienced contract lawyer can ensure that you are adequately protected, that the contract accounts for any potential liabilities and risks, and that there are no loopholes in the contract. In addition, having an expertly written contract minimizes the risk of contract litigations.
Contract lawyers can offer hourly or flat fee contract drafting services. Contract drafting costs range between $200 and $800 for a simple contract and $1,000 and $5,000 for a contract. Depending upon the scope and depth of your objectives, the complexity of terms and business relationship will determine the cost to draft the contract.
Do you need help with a contract? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from business lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.
