Contracts 101: Contract Ingredients

The term “contract” may send chills down the spine and conjure up images of endless pages written in arcane legal language. There may be mountains of dusty legal volumes, mounds of yellow paper, and miles and miles of real red tape. It’s not an appealing sight.

Fortunately, this mental image could not be farther from the reality. Contracts are a necessary component of conducting business and are faced on a daily basis. Consider this: You’ve accepted a contract every time you establish a bank account, stay at a hotel, or order a meal at a restaurant. Even pay-as-you-go mobile phone plans require a contract in which you have committed to pay a phone provider a certain amount for a set service.

A contract is simply an agreement between two or more persons or organizations that results in a legally enforceable promise or collection of promises. Everyone involved must follow through on what they’ve committed to do, and if the commitments are broken—a legal term for breaking a contract—the damaged party has certain remedies.

What exactly is a contract? Explained essential concepts

A contract may seem scary since it is often associated with big life choices like as purchasing real estate or accepting a job offer. But, whether you’re signing a mortgage for a new house or merely purchasing groceries, all contracts have the same three elements:

The topic of a contract is the specifications that must be defined in order to set out all of the intricacies. The topic of a contract usually includes an offer and an acceptance of specified conditions. The sales agreement is the topic if you purchase a vehicle from a dealer. If you’re shopping for a sweater on sale at your favorite store, the price tag may be the topic. In each scenario, the topic describes an offer to trade an item for money, and you accept the offer by handing over the agreed-upon sum.
Contracts should not be arbitrarily drafted. A rationale for having a contract in the first place is required. A contract’s consideration is the reason, motivation, price, or goal underlying the contract. In many circumstances, the consideration is money, but it might also be acceptance of responsibility or a pledge not to do anything. A non-disclosure agreement, for example, contractually prohibits the revealing of information that would otherwise be permissible. In essence, consideration is what persuades everyone concerned to sign the contract in the first place.
Capacity: Everyone engaged in the agreement must be competent and authorized. This implies that a person who is seriously mentally impaired or under the age of 18 cannot engage into a legally binding contract. It also implies that everyone involved in the contract must have the necessary authorization. Jane is unable to sell June’s automobile unless she obtains express consent.

Examples of Elements in Action

You may have noticed that contracts are prevalent in daily life. Every time you order a cup of coffee at the local café, shop at your favorite retailers, or simply sit in your barber’s chair for a haircut, you’re entering into a contract. Even though it isn’t the first thing that comes to mind as you go through these tasks, every scenario incorporates topic, consideration, and capacity.

Some contract instances may be more evident. Think about renting an apartment or office space. The topic of a properly defined rental contract will most likely provide clear cut regulations regarding what is expected of you as a renter. You’ll make monthly payments to your landlord in consideration for usage and ownership of the property. Your landlord or manager is capable of renting or leasing the property to you. Making things official with a contract ensures that if anything goes wrong, you can both depend on the initial rental contract to protect you and provide remedies in the event of a violation.

Whether you’re renting an apartment, starting a new job, or making a transaction with your debit card, you’re entering into a contract with a subject, consideration, and capacity. Contracts are a part of daily life, and understanding the components of a contract may help you feel more secure when making any kind of commercial, legal, or personal choice.