A contract is an important document when it comes to businesses or employment. It is where an agreement between two parties sharing mutual understanding is stated, therefore serving as a proof of that agreement. The contract lists both the responsibilities and limitations of the agreeing parties. A violation of any provision on the contract is grounds for legal action.
There are six elements that should be present in a document for it to be considered a contract.
- Agreement â Also known as offer and acceptance, it is the "willingness to enter into a bargain so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it." One party should make an offer that must be accepted by the other through a statement. The details of the offer must be precise.
- Legal capacity â The parties who will enter into the contract should be legally competent, meaning of sound mind or of legal age.
- Consideration â This states that participating parties must receive something of value, though not necessarily monetary. Exceptions to this are contracts under seal or deeds.
- Intention to create legal relations â The offer must be legally accepted and the parties should be aware that they are going into a legally-binding agreement.
- Consent â The compliance of the agreeing people is of free will.
- Mutuality of obligation â Also known as the "meeting of the minds" or the understanding by the involved parties on all of the details of the contract.
It is advisable for people to put their agreement into writing in order for it to be enforceable, especially if it involves transfers of real estate, sales of goods amounting to more than $500, or contracts that require over a year to perform. When the contract is written, it also becomes a proof of the agreement so the other parties can't change any details later on. Having a lawyer write it down is also advisable.
Contract Law Overview
Contracts are regulated and imposed by the laws of the state where it was made. There are two types of state laws that oversee agreements: the common law and the Uniform Commercial Code (UCC).
The common law is a developing, tradition-based set of laws that are mostly made from court decisions over the years. Common laws control employment, property leases, and general business contracts and agreements.
Meanwhile, the UCC controls contracts that are mostly for the sales of goods. It is a collection of guidelines and regulations that governs the law of commerce. Some states have the UCC as a part of their codified laws for the sale of goods.