A business contract is an agreement between two or more persons, who can be real or artificial, with an objective to carry out a particular act, such as provision of a good or service, and is safeguarded by law. In the early days, most business contracts were unwritten, and many deals were agreed with a simple handshake. The problem with these informal contracts was that if a problem arose during its term, it was difficult for the aggrieved party to obtain justice in court as the conditions were unclear. Even though many business contracts today are written, there still exist verbal ones. However, over time, businesspeople have agreed on specifics that every contract should have, be it verbal or written. Indeed, today’s business contracts are very detailed in order to make the terms clear to the parties involved.
Elements of a Business Contract
Every enforceable business contract comprises nine features:
- Offer. This is the subject over which the transacting parties agree upon. It can be either a product provided or produced by one side and paid for by the other party or a product or services offered and traded in for the other side’s product or service.
- Pledge to Perform. Also known as an acceptance, this is an agreement by the parties involved to adhere to the contract’s legal and value aspects. Notably, a contract makes the offer clear to the other party and acceptance of its terms protects both parties.
- Time obligations. All business contracts should have a time limit to which the goods or services agreed upon by the contracting parties are delivered. This section encompasses times, dates, and the products supposed to be delivered.
- Terms and conditions of execution. This aspect of a contract focuses on how the rendering of the product or service will take place. It encompasses details, such as specific requests and availability of goods or services. Importantly, the contracting parties have to negotiate and agree to the terms and conditions of performance.
- Performance. It covers the rendering of the agreed goods or services.
- Intent. There must be a clear will from both parties to fulfill their parts in the contract.
- Capacity to contract. The parties entering into the contract must have legal capability to do it, meaning they must be of sound mind and over the age of 18.
- Consideration. This is a valuable item exchanged between the contracting parties. In most cases, the consideration is money. It is important to note that an absence of consideration negates the validity of the contract.
- Legality. All business contracts must follow the law.
Types of Business Contracts
There exist three main kinds of business contracts:
- Express Contract. In this kind of contract, both parties explicitly agree to the contract’s terms either in writing or orally.
- Implied-in-fact contract. This type of business contracts brings the parties together through mutual intent and agreement but does not have express agreement terms.
- Implied-in-law contract. This business contract is mainly enforced by a court as a result of one party’s unjust enrichment at the expense of the other through contravention of the terms of an earlier agreement.
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