Contractual agreements

Contractual agreements are one of the principal mechanisms for ordering life in society. Whether a contract is written or oral, or even implicit, it carries with it all of the duties and obligations that society has endowed with the force of law.

This article of lays a comprehensive  foundation in the practical and intricate body of law that governs contracts. What is a contract? How can you make one binding?  How can you avoid being prematurely bound by one? What can you do to get out of a contract? What remedies are available if someone breaches your contract?  

                                            

                                                 What is a contract?

A business contract is a legally binding agreement between two or more parties to do or not to do certain things. For example, a business contract could be for the sale of goods or supply of services at a certain price.

In general, contracts may be either oral or written. Certain classes of contracts, however, in order to be enforceable, must be written and signed.

These include contracts involving the sale and transfer of real estate; contracts to guarantee or to answer for the miscarriage, debt, or default of another person; and, in most states of the U.S., contracts for the sale of goods above a certain value.

          

                       What general matters are covered in a contract?

Some of the general matters that a business contract can cover include but are not limited to:

parties to the contract, date of the contract, definitions used in the contract, description of the goods and services that your business will provide or receive payment amount and details of payment dates, interest on late payments delivery dates of goods and performance dates for services insurance provisions, guarantee provisions, termination dates of the contract, renewal terms, damages for breach of contract, termination conditions and special conditions.

                

    II. TYPES OF CONTRACTS

Contracts are often classified as either contracts by specialty or simple contracts. Another class of obligations, sometimes referred to as contracts of record, are conclusive legal obligations created by the judgment or order of a court of record.

Contracts by specialty depend for their validity on the formality of their execution. They are required to be written, sealed, and delivered by the party to be bound thereby.

The usual form of specialty contract is a covenant. A bond, although in form an acknowledgment of indebtedness instead of a promise to pay, has always been regarded and classified as a specialty contract.

 Contracts by specialty do not require consideration or surrender of a right, given in exchange for the promise, to give them validity. Courts of equity, however, will not enforce a specialty contract unless it is founded on a consideration.

Simple contracts do not depend for their validity on any particular formality in their execution, but rather on the existence of a consideration. A simple contract may be written or verbal, or may even be implied from the acts and conduct of the parties manifesting their intentions.

It usually comes into existence as the consequence of an offer and acceptance. In contracts entered into by letter, in most jurisdictions, the offer, unless it stipulates otherwise, is deemed to be accepted on the posting of the letter of acceptance. 

In a few states, however, it is held that no acceptance exists until the letter of acceptance is actually received by the person making the offer. Inasmuch as agreement must be in effect in order to create a contract, any mistake in setting forth the terms of the offer or acceptance that should be apparent to the other party negates the agreement, and no contract will arise.

Simple contracts are frequently classified as express and implied. An express contract is one entered into on terms expressed in spoken or written words. An implied contract is one that is inferred from the acts or conduct of the parties.

                    The essential elements of a contract

To be legally binding a contract must contain four essential elements. These four elements are:

offer; acceptance; intention of legal consequences; and consideration.

The four essential elements of a contract can be briefly explained as follows; a contract is formed when one party makes an offer and that offer is accepted by another party for an exchange of some benefit or something of value by the parties (this is the consideration element). The intention of the parties is that they are legally bound by the contract.

I.                                      NULLIFYING CONTRACTS

 Even if the four essential elements above are present a contract could in be invalid if:

It is an illegal contract. Examples of illegal contracts are an agreement to commit a crime and an agreement that breaches legislation, such as unconscionable conduct under the Competition and Consumer Act 2010

The contract involves misleading or deceptive conduct, mistake, duress, undue influence, unconscionable conduct or other categories that at law can cause the contract to be avoided.

The contract of a lunatic, an idiot, or a person so under the influence of a narcotic or of intoxicating liquor as not to be capable of a free exercise of will is sometimes said to be wholly void.

 In recent cases, however, such contracts have usually been regarded as merely voidable; and in some instances they are enforced if the other contracting party is unaware of the incompetency and the terms are fair. 

The person or entity lacks the capacity to enter into the contract. Examples of persons lacking capacity are minors and bankrupts.

The contract of a minor, usually a person under the age of 18, is not void, but voidable, and it may be affirmed by that person on attainment of full age.

                                 IV. BREACH OF CONTRACT

In case of a breach of contract the injured party may go to court to sue for money damages, or for rescission, for injunction, or for specific performance if money damages would not compensate for the breach.

Specific performance of a contract is the right by one contracting party to have the other contracting party perform the contract according to the precise terms agreed therein.

 In many jurisdictions this right can be obtained only where money damages would be insufficient to compensate one of the parties. Under the law of some states a person may sue either for money damages or for specific performance.

                   Standard contracts and obtaining legal advice

The Small Business Development Corporation (SBDC) is frequently asked for standard business contracts for a variety of purposes such as buying a business, leasing commercial premises, partnerships or employment contracts.

Standard contracts' may be available through industry associations. It is advisable that contracts are drafted to reflect the unique commercial circumstances of the parties negotiating the agreement. The lawyer drafting the contract will take into account their client's concerns, commercial risks and matters agreed during negotiations.

Keep in mind that you should always get legal advice before signing a significant contract.

                      Get the right advice

In business it is particularly important to get the right advice before entering into a business contract, or you could face significant and far-reaching consequences.

Legal advice will ensure your rights are protected and favorable terms are negotiated on your behalf - terms that better suit your business and allow you to trade profitably, which means the likelihood of costly disputes in the future is reduced.

Furthermore, the underlying transaction of a contract can have GST, taxation and stamp duty consequences and this aspect of the contract could also require professional advice.