A contract is an agreement that establishes a legal obligation or liability. Learn about written and oral contracts, as well as how to create one.
You may be familiar with the academic concept of a legal contract, but do you know how it applies in practice? You really should. Individuals engage into contracts all the time, sometimes without realizing it.
Table of Contents
What exactly is a contract? The fundamentals explained
A contract is simply an agreement between two or more individuals or organizations that generates a legal obligation or liability. Individuals, firms, corporations, and organizations may engage into a contract, but there are a few elements that must be followed for the contract to be valid in court. A legally binding contract must specifically have the following elements:
Acceptance and offer
Consideration
A consensus on the legal subject matter of the contract (e.g., both parties intend on the purchase and sale of a car for an agreed price)
Legal standing (competency)
Here’s a more detailed breakdown:
Subject: A contract must include specific terms that explain out all of the facts, as well as a well defined offer. These particulars are known as the contract’s topic. Consider buying a used automobile from a dealership. The topic is the sales agreement, which will most likely contain details such as the price, warranty, and transfer of title or ownership.
Consideration: There must be a legitimate reason to engage into the contract. A contract’s consideration is the reason, motivation, price, or whatever aim there is for having a contract. The price is often money, but it may also be acceptance of responsibility or a pledge not to do anything. A non-disclosure agreement (NDA), for example, legally prohibits the revealing of information that might otherwise be permissible. This is often developed at the meeting of minds.
Competence: Everyone participating must be knowledgeable. This implies that a severely mentally impaired individual cannot engage into an enforceable contract. Moreover, contracts entered into by minors are normally unenforceable until they attain the age of 18 or the majority age in their jurisdiction.
Implied vs. Express, Written vs. Oral
Contracts may be oral or written, implicit or stated, depending on the circumstances. Although an oral contract—basically a verbal agreement expressed out loud in conversation—might work in certain cases, the majority of enforceable contracts need be specifically put into a physical document.
Contracts may be explicit or implicit. Written contracts are often regarded as explicit, which implies that the topic is described clearly and all details are covered. Examine a vehicle rental agreement. When you hire a vehicle, you agree to pay a set sum for the use of the automobile over a given length of time, as well as certain, specified fines if the car is returned late or in a different condition than it was received.
Additional circumstances in which an explicit, written contract is likely to be necessary include:
Real estate transfer or sale, such as when selling a home or property, or when leasing office space or an apartment.
The purchase of goods or services costing more than $500, such as when hiring someone to replace your roof or purchasing a vehicle.
An agreement for anything that will take more than a year to complete, such as a year-long house maintenance contract or a non-disclosure agreement that will last at least 12 months.
Implied contracts, on the other hand, are exactly what they sound like: the specifics are assumed. Try getting a latte at your local coffee shop. Even if the matter was not explicitly verbalized or formally discussed, you just got into an oral contract with the barista processing your order. It was expected that by ordering the drink, you were prepared to pay for it.
Contract illustrations
There are several instances of contracts in daily life. In reality, you form contracts on a regular basis without even realizing it. Whether you buy anything at your favorite shop, order a meal at a restaurant, see your doctor, or even borrow a book from the library, you are entering into an implicit contract. Some types of contracts are more specific or explicit. Whether you bring your vehicle down for servicing, accept a new job, or sign a cheque, you are entering into a contract.
Contracts are a part of life, whether you’re operating a small company, applying for a job, leasing an apartment, or swiping a credit card to pay for lunch. Knowing the principles of contracts will help you feel secure while making all types of legal choices.
