The deal is really never done until you sign on the dotted line. And once it’s done, everything changes.
But what impact does a contract really have? Is it necessary?
What is a contract?
A contract is a legally binding written or oral agreement between two or more parties, with a promise to perform certain tasks, in return for a benefit. It creates and defines the duties and obligations of the parties involved.
Types of contracts
They can be based on:
Validity. Can either be-
- Valid contract
- Void contract
- Voidable contract
- Illegal contract or
- Unenforceable contract
- Formation. This can be-
- Express contract
- Implied contract or
Performance. This is either-
- Executed or
- Executor contract (unilateral and bilateral)
Essentials of a contract
This is an intention to perform a certain duty for consideration if accepted. It can be oral, written, or both and must have a clearly stated acceptance mode. The person making the offer is known as an offeror, while the recipient of the offer is known as an offeree.
This is the exchange of something valuable between the parties to the contract; an ‘enticement’ by one party to the other. Consideration does not need to benefit the other party; it merely has to be sufficient and can be past, present, or future. It may be in monetary or promissory form, and both parties must provide something valuable- if only one party provides something, then it ceases being a contract and becomes a gift!
This is an expression made by the offeree, to the terms set out by the offeror. Acceptance is agreeing to the terms of the offer and can either be through performance or non-performance of certain acts if this was stated in the initial offer. If the acceptance is done differently, other than the stated mode, then it becomes null and unenforceable in a court of law. Silence is not an assumption of acceptance-an exception will only arise if the two parties had engaged previously.
This ties the parties to the contract. One party cannot ‘walk away’ from their obligation without following the laid down procedure of doing so. The offer must clearly state the obligations of each party and ways of discharge from the same. If they walk away, the aggrieved party can seek legal redress in a court of law. A contract can only end for convenience or cause.
- Contractual capacity
Any party entering a contract has to have a legal capacity to be held liable in case of any eventuality. When a party is unaware of the consequences of the contract they are entering into, then under the law, they lack the mental capacity to form a binding contract.
There must be documentary evidence that the parties were legally bound to perform their obligations for the contract to be enforced in a court of law. However, a verbal contract can be enforced if there are documentary traces e.g. emails. . Always remember that if it’s not in writing and signed, then it can’t be enforced.
An agreement can never be a contract, but a contract has to be an agreement. At the end of the day, careful attention should be placed on the details of any contract. If in doubt, or do not understand the legal jargon, engage the services of a lawyer before signing the dotted lines.
Sources: businessjargons, rocketlawyer, legalpaathshala, resumesplanet, contracts, avvo, smallbusiness