Contracts are an important part of the business world and are legally binding in a court of law. A contract is defined as an exchange of promises between two or more parties for one party to hold up a part of a deal or for one party to stop doing something that annoys the other party or parties involved in the contract. A common term used in contract law is obligation. The terms of the contract are obligations that must be followed by the parties involved.
Contracts cannot involve any illegal activity, cannot be impossible to complete and must not be indeterminate. For a contract to be legal, it must be agreed upon and signed by all parties involved in the process. Some of the most common contracts are made orally, as in a point of purchase, when buying a sandwich, a tool or a magazine.
As defined by the majority of common law systems, there are five key aspects of contracts. They are offer and acceptance, consideration, an intention to create legal relations, legal capacity and formalities.
The first rung of the contractual ladder is offer and acceptance. This first step involves one party announcing an offer that includes incentives along with the general terms of the contract. Once the offer is placed on the table, the other party or parties involved will review the offer with their agent or lawyer and then either accepts the terms of the contract or declines the contract and place a counter-offer on the table for review.
The second step of the contractual ladder involves consideration. Consideration is a process that takes place when the two parties meet in negotiations. Consideration involves both parties bringing a bargain to the table during the negotiation process. The bargain should be a conferral of benefits, such as money or length of the contract. In sports, a player might take less money to remain with the team he has played his entire career with instead of changing teams for more money.
Step three of the contractual ladder is intention. When building a contract for two or more parties, the parties have to intend to be legally bound to one another unless they expressly state that they do not wish to be legally bound to one another. Intention is not common in domestic relationships between parent and child or between husband and wife.
The fourth step of constructing a contract involves the legal capacity of the contract. This involves determining how strong of a legal bind the contract actually has if one of the parties involved breaks the terms of the contract. Depending on the legal capacity of the contract, reparations can be paid to the other party involved for the other party breaking the terms. In sports, players that do not fulfill their contractual obligations to their team usually have to return a chunk of the money they made while with that team.
The fifth and final rung of the contract building process involves formalities. One of the most common formalities is if a contract is in written form and a party signs the contract, they are now bound by the terms of the contract even if they haven't read the contract. Also, most documents, if being used as a basis of contract, must provide notice of terms before the other party can entry into the agreement. This is most common in parking garages, purchasing electronic equipment, and stores' return policies.
When people are considering entering into a contractual agreement with another party, an attorney with experience in contractual law will be beneficial to the party. An attorney will be able to provide legal counseling about the contract, the terms of the contract, whether or not to sign the contract and what they should offer during the consideration period.