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What Is a Contract Agreement?
No matter the size of your company, a contract agreement is an essential part of conducting business. A legal contract is a document that all parties agree to. Contract agreements typically lay out the terms and conditions of an agreement, clearly explaining all parties' expectations. This often includes specific details about important aspects like payments, materials, and timelines as well as how the parties can resolve disagreements.
Contracts vs. Agreements
You will often hear the terms contract and agreement used interchangeably. However, it's important to note that contracts and agreements aren't exactly the same things. Agreements create mutual understandings between parties, while contracts are agreements that create enforceable obligations.
When Do You Need a Written Contract Agreement?
Verbal contracts are technically legal in most cases, though there are specific situations when they are not. Still, most businesses create written contracts today. Contracts include many details to try to cover all possibilities and eventualities as clearly as possible.
Most contract agreements never get to a courtroom. Theoretically, they could, therefore, be verbal. However, should something go wrong, a written contract better protects all parties involved. If a party to a valid and enforceable contract thinks the other party has in some way broken the contract (in other words, they've breached the contract), the harmed party can bring a lawsuit using the written contract for support.
While verbal contracts can still have the force of law, certain types of contract agreements are required to be in writing. This includes long-term contracts as well as contracts for marriage, or prenuptial agreements. ( Here is an article with further information about prenuptial agreements.)
It is also possible to have an implied contract. A party can enter into a contract unknowingly and still be forced to fulfill the contract's terms.
What Makes a Contract Agreement Enforceable?
A contract must be clear and specific to be legally enforceable. It also must meet certain criteria. If a contract agreement is legally enforceable, it can be used in a court of law to support a decision if a dispute arises between the parties to the contract. However, if a contract does not include certain key components, it will not be legally enforceable and thus will not stand up in court.
If a contract is valid, litigation (the legal process) can determine if a contract has been breached or if there are circumstances negating the breach. However, a court will only consider a contract dispute if the contract itself is valid.
Essential elements for business contracts relate to both the agreement itself and to the parties entering the agreement. However, it is not illegal for someone to enter into a contract that does not include all of the essential components. A court simply cannot enforce a contract that doesn't include the necessary elements.
Components needed to create a valid contract include:
Offer, Acceptance, and Mutual Consent
All valid contracts must have a specific offer. An enforceable contract must also include acceptance of the specific offer.
Further, both parties to the agreement need to consent to their free will. That means neither party can be forced or coerced into signing a contract. Both parties to the contract must also clearly agree to the same terms.
The conditions of the offer, acceptance, and mutual consent also imply that the parties intend to create a binding agreement. That means if one of the parties (or both of them) aren't serious, there isn't actually a contract.
Consideration
All contracts must include consideration, or something of value being exchanged between the contract's parties, to be valid. That thing of value can be either services or money. However, both parties must be giving something. If not, you have a gift, not a contract.
Here is an article about consideration in contracts.
Competence
Parties to an agreement must all be of sound mind for a contract agreement to be legally enforceable. In other words, the agreeing parties must be able to understand the situation and what is being required of them. Competence also requires that:
- Neither parties are minors
- Neither parties are mentally deficient
- Both parties are sober, i.e. not under the influence of alcohol or drugs, when they sign the contract
If a party to a contract is not competent, that means the contract is not considered valid. The party that is not competent can ignore, or disavow, the contract in that case.
Legal Purpose
For a contract to be enforceable, it must be a contract for a legal purpose. In other words, a contract for something illegal, such as prostitution or selling drugs, is not enforceable in a court of law.
Other Important Aspects of a Contract Agreement
While the above components are required to make a valid contract, there are other important aspects that anyone creating a contract should be aware of. Things to keep in mind include:
Researching Local Regulations
Contracts should incorporate local regulations that could apply to the specific situation of the agreement. Industry and/or union regulations may also apply and should be included in the contract. Examples to consider include:
- Requirements for insurance
- Noise and other restrictions
- Required fees
- Required licenses or planning permissions
Defining Specific Details
Good contracts don't leave anything to chance. You'll want your contract to include all details relevant to the agreement you're entering into. Even if something seems obvious to you, it may not be clear to the other party, so make sure your contract defines any key terms as well as exact services or products.
Important details to cover include:
- Contact information for all parties
- Time period the contract covers, including start and end dates
- Definitions of key terms
- Services of products you are providing or receiving
- Liability requirements
- Insurance requirements
- Terms of payment, including due dates, milestone payments, and/or part payments
- Interest and/or fees required for late payments
- Dispute resolution processes
- Breach-of-contract processes
- Any other special conditions
Image via Unsplash by kellysikkema
Types of Contract Agreements
Various categories of contracts exist. Examples include:
Unilateral Contracts
These contracts are usually one-sided. One party makes all promises in this type of agreement. Item repairs and maintenance agreements are examples of this type of contract.
Bilateral Contracts
Both parties make promises in this type of contract. Bilateral agreements can give parties access to new markets. Real estate contracts are typically bilateral contracts.
Executed and Executory Contracts
An executed contract is simply a completed contract, typically made between two or more individuals. Executed contracts are also possible between a person and entity, or two or more entities. The purchase of a service or product is an example of an executed contract. The terms of an executed contract must be fulfilled right away.
Executory contracts, on the other hand, are contracts with terms that will be fulfilled later on.
Contracts Under Seal
Some agreements require the use of a seal to show the contract is official. This seal can be a wax seal, a seal created using a special stamp to emboss the seal onto the document, or the attachment of adhesive paper.
Working with an experienced contract lawyer can help you make sure your contract includes all the necessary components to protect you and your business given the specific circumstances of your agreement. This way, you'll know that your contract is valid and will stand up in a courtroom if a dispute arises.
Meet some of our Contract Agreement Lawyers
December 6, 2023
Eliza J.
Eliza brings a distinguished track record of delivering outstanding results for her clients, showcasing expertise across a spectrum of legal areas. Eliza is not just an attorney; she's your dedicated advocate with a proven record of achieving excellent results for her clients. Her representation spans numerous family law cases, including dissolutions, custody, support, probate, and civil litigation matters. Eliza's unique background as a Registered Nurse and licensed Attorney sets her apart. Before establishing her law practice, she served as a Registered Nurse in various hospitals across Los Angeles and the Bay Area. Notably, she contributed to prominent institutions such as Los Angeles County Public Health and the City of Anaheim. Additionally, Eliza ventured into entrepreneurship, managing her own Professional Fiduciary and Consulting business. Her legal acumen extends to civil litigation, personal injury, medical malpractice, nursing home abuse, worker's compensation, and family law matters. Eliza earned her Bachelor's Degree in Nursing and Public Health from CSU Dominguez Hills. In 2008, she furthered her education, obtaining a Master's Degree in Nursing, Administration, and Healthcare Management, along with a Quality Improvement Certificate. Eliza culminated her academic journey by earning her law degree from the JFK University of Law in 2016. Eliza's multidisciplinary background uniquely positions her to navigate the intricacies of legal matters, offering a comprehensive and compassionate approach to her client's diverse needs. Eliza's diverse background uniquely positions her to understand and address your legal needs comprehensively. Trust her to navigate your case with care and dedication, ensuring you receive the support you deserve.
December 6, 2023
Kenneth W.
Committed to a career in advocacy as an attorney, educator, and consultant, I specialize in education, family, personal injury, and criminal law. While at John Rue & Associates LLC, I led litigation and alternative dispute resolution, handling complex class-action lawsuits involving discrimination, privacy, administrative, and education law. I also directed conflict resolution through mediation, reducing costs and securing favorable client outcomes. While in law school, I served as a law clerk at Wilson Elser, excelling in crafting answers, overseeing discovery, attending depositions, and conducting exhaustive legal research. My responsibilities extended to preparing deposition summaries, assisting in motion practice, drafting persuasive briefs, evaluating cases, and contributing to trial preparations. I thrived in managing client affairs, supporting colleagues, and ensuring compliance with relevant laws. I am eager to explore opportunities to contribute my skills and passion to impactful projects aligned with client needs. I look forward to discussing opportunities and demonstrating how my qualifications will meet client needs.
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Adam T.
Legal professional with 10+ years of Fortune 500 in-house and AmLaw 50 law firm experience in crafting multi-pronged litigation, regulatory, and public policy strategies and negotiating pioneering, high-stakes global cloud services and digital content distribution deals.
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Ido A.
Ido Alexander is dedicated to helping his clients identify risks and understand how to navigate the unknowns. He has a keen ability to sort through the noise to develop strategies for growth and advance clients' interests. An experienced counsel, he focuses on finding solutions for businesses, estate planning needs, helping resolve complex and strategic disputes, and at times restructuring through bankruptcy or out of court, while keeping his clients' financial health as the top priority.
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Moshe G.
Motivated and self-starting Corporate and Commercial Counsel with over 12 years of experience in providing strategic legal solutions. Exceptional analytical and negotiation skills, focusing on Cyber Security, Finance, and Software. Proven track record of success in handling complex M&A matters. Expertly led negotiations and full five M&A transactions from start to finish (over $100M), resulting in successful integration including raising capital on Reg. A and Reg. D exemptions. Drafted, reviewed and negotiated commercial agreements including, Restructure Agreements Partnership Agreements, Asset Purchase Agreements, Stock Purchase Agreements, Restructure Agreements, Loan conversion Agreements, Debt Conversion Agreements. Provided business and capital strategy, such as restructuring of companies, due diligence, and SEC filings. Proven expertise in M&A and equity debt finance, with a track record of handling diverse clients. Provided strategic guidance on corporate governance, compliance, fiduciary duties, and ethical issues
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Alexis L.
I am an attorney in Michigan. I attended Boston College for my undergraduate degree and Suffolk University Law School for my law degree. I have been practicing law for over 20 years.
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James S.
Business and Real Property
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Contract Agreement
Florida
Are emails legally binding?
My ex-husband and I discussed getting my son a cell phone, but he was very much against it. We came to an agreement that we would not get him one until the end of the school year, but my current husband bought him one. I am wondering if the email that was written is legally binding. I would like my son to still be able to use the phone, even though my exhusband is still against it, but wanted to make sure the agreement that was made wasn't legally binding.
Ayelet F.
Early in law school we learned that any bargain for consideration can be legally binding, meaning anything even written on a cocktail napkin can be binding if it contains the elements necessary to deem it a contract. Although I am answering this as a hypothetical and not as your attorney it is very possible for an agreement to be deemed legally binding when done via email if it can meet the threshold of being a contract. The basic elements for a contract or legally binding agreement are offer and acceptance, adequate consideration, capacity and legality of the contract. If an email contains all those elements it can be an agreement that was made through the course of the communication. I would certainly recommend speaking with your divorce attorney or a family law attorney licensed in your state if you are concerned about any possible liability. *The answer above does not constitute legal advice, nor create an attorney-client relationship.*
Contracts
Contract Agreement
South Carolina
I sold my house but was never paid
To avoid foreclosure, I spoke with a contractor to flip my house for me. He would pay my mortgage until it sold then pay it off and keep the profit. I walk away with the mortgage company paid, but I was fouled. He isn't paying the mortgage after I signed the contract. I'm concerned he will be able to sell it now himself without the mortgage company ever being paid.
Christopher B.
There are many issues involved in this question. I would need to see the original deed and mortgage on your house plus the contract you signed with the contractor. The original mortgage almost certainly had an acceleration clause stating that if you sold the property, then the full mortgage becomes due. Going after the contractor might be possible but other avenues would more likely be the better route to keep your house from being foreclosed. Will also need to see if your contract gives ownership to the contractor or just the right to sell on your behalf. Lots of additional questions that need documents to give you your options.
Business Contracts
Contract Agreement
Georgia
Need to draft a personal contract
I need help to prepare a personal contract between myself and Ex-partner. We were never married before. I want to offer her compensations for her losses due to the end of our relationship and need help to write the terms and conditions and discuss legal issues.
Donya G.
OK. You need to decide what you would like the terms to be and discuss them with her. A contract is always best and easier to get done when both parties are in agreement with the terms and what the document should say. Once you have done that, then you should seek to engage with an attorney to assist you with the actual document and the language. If you you would to engage my services where I would draft your agreement and advise you, you can contact me on the contracts counsel website and I would be happy to assist.
Dispute
Contract Agreement
Utah
Should I sign a contract if I don't understand what it is saying?
Has a contract with someone where if we disagreed we would go to mediation. They refused to go, they offered us a settlement as long as we signed another contract. I don't understand fully what it is saying.
Donya G.
Absolutely NOT. You never sign ANYTHING you do not understand because when you sign, you become bound to those terms whether you understood them or not or whether you agree with them or not. Should you later have a disagreement on the contract you signed, the court, or arbitrator will see your signature on the document as a sign that you read, understood and agreed to the terms. You will need to hire an attorney to review the initial agreement to see if they can refuse mediation as well as to look at the new contract and let you know what it says and whether you should sign it or not. I am a contracts attorney and if you you would like my services, you can contact me on the contracts counsel website.
Dispute
Contract Agreement
Illinois
What is my best path to recover a down payment paid to a contractor who never started my job and has gone MIA while I've been trying to cordially recover my money. Demand Letter via certified mail etc..?
I signed a contract with a contractor to update my home. I signed the contract and paid a $5k deposit (the contract has zero verbiage related to a deposit) to 'get on his list'. After several months and failed attempts to get a specific start date I informed the contractor I was not going to move forward with the project. He said he would pay the deposit back but asked for me to accept $1000 / month. He paid $1000 back however has gone MIA since and is not returning any calls or texts.
Jane C.
I suggest you have an attorney send a demand letter. If that fails, you can bring you claim against the contractor to small claims court.
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