A contract is an agreement between two parties. In business, a contract lays out the expectations for both parties. If you fail to hold up your end of the agreement, the other party can sue you. If you want to protect your business from disputes, always commit the contract to paper or electronic media. Ensure that the contract is specific and detailed to protect both parties from disagreements that can come up if something goes wrong. The process of writing a contract does not have to be daunting, especially when you can access free contracts online. Here is a beginner’s guide to writing contracts.
1. Contents. The legal field that focuses on drafting and enforcing contracts is called contract law. Business and other transactional lawyers practice in this field as a specialty. However, contract law is defined by each state’s common law. As such, it is advisable to contact a licensed attorney in your state. For any contract to be legal, it must contain the following:
- Mutual assent: this is a valid offer and acceptance between both parties. For instance, if you are selling a car, you must be willing to sell, and the other party must agree to buy it.
- Adequate consideration: this is the purchase price, which can either be money or a trade.
- Capacity: this is the ability of both parties to agree. The mentally ill and minors cannot sign a legal contract.
- Legality: the contract should meet all the jurisdictional requirements.
2. Consideration. For any contract to be enforceable, it must have adequate consideration, which could be in the form of money, property, action, or inaction. However, the action or inaction should not be illegal or something that the other party is already legally obligated to do. Consideration must be legally bargained for and sufficient. As such, both parties must agree on the purchase price, have mutual benefit, and achieve a mutual detriment. One party may also give up some rights by accepting the agreement. For instance, a painting company can agree to repair any damage they may cause to your property while painting your home. If you agree to this, then the consideration is legally sufficient.
3. Breach of Contract. A breach of contract occurs when one party fails to meet their expectations. For instance, if you paid a dealership the amount you agreed and they fail to deliver the car, the dealer has breached the contract. A breach of contract can either be material or immaterial. The former is something physical, like the car not being delivered, while the latter is intangible. For example, when the dealer delivers your car late. When one party is in breach of contract, you can agree on how to handle the breach. You can also go to court or use a mediator or binding arbitrator to resolve the issue.
4. Privity of Contract. Anyone who is not part of the agreement cannot enforce the terms of that contract. Privity of the contract protects both parties from third-party interference. However, a court decision can relax the contract and allow a third party to sue if necessary. For instance, in the case of implied warranty and strict liability.
Always use contracts in all your business transactions. However, ensure you understand a contract before entering into one.