A lot of people get cautious when a certain discussion or transaction is about contracts. All sorts of negative and fraudulent stuff would come rushing into our minds, and all of a sudden we start to doubt the person in front of us even if they are a really close friend or a family member. Then we start to think about getting a lawyer or bringing a lawyer on the next meeting for the contract signing. The once-friendly environment becomes very awkward and uncomfortable. This is actually not something new. We tend to get cautious with the mention of the word contract because that is what we always see on television. Talk about watching too much TV. Contracts are really not that bad. You just need to know what it is and how it works.
Fighting ignorance with knowledge is what we are aiming for in this article. Having knowledge about contracts will surely save you from unnecessary and unwanted embarrassment. Not all you see on television is real. Here we will be discussing about what a contract is,what are the different types of contracts, its importance, its essential elements, and the benefits of using a written contract. To further your understanding about this topic, we have also prepared 35+ of the best contract sample templates you can get your hands on. These samples are available in Doc so that you can easily have them edited. The best part is, you can download any of them for free! You can check them out below.
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What Is a Contract?
A contract is a legally binding agreement between two or more parties about a particular something. It is an arrangement that is agreed upon by all of the parties involved in it. It contains an outline of the terms and conditions that all of the involved parties have agreed on. Common examples of contracts are loan contracts and employment contracts. A legal contract is one that in enforceable by law and must be followed by all of the parties. Since it is a legally binding contract, whoever is bound to it must oblige to the stated terms and conditions, and perform their share of responsibilities throughout the length of the contract. If any of the parties violate any of the terms and conditions of a contract, then they are breaching the contract.
What Is a Breach of Contract?
The parties involved in a contract need to perform their share of responsibilities in a contract, and they need to follow the terms and conditions provided in it. If one party fails to do their share or violates any of the terms and conditions, then they are said to breach the contract. A breach of contract is not something to be happy about. It is one of the things that parties would want to avoid when they get into a contract, especially if the contract involves serious matters. Having to face lawsuits and appearing in court are some of the things that one could face as a consequence for breaching the contract. There are remedies for contract breaches that can be used if a breach of contract is unavoidable. Still, one may have to pay for hefty fines and settlements as demanded by the non-breaching party.
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What Are the Possible Remedies If There Is a Breach in the Contract?
A lot of unexpected things could happen with the parties who are in a contract, especially if the contract has been breached. Good or bad things could arise, and they are not something that one can tell. Mostly contract breaches result in one party losing something. It could be a financial loss, loss of business, or loss of public trust. In these situations, a breach is remedied first before it is ultimately brought to court. Only when any of the applicable remedies fail that a breach of contract is brought to court.
The non-breaching party may do the following in case there is a breach in the contract:
- They may sue for damages. The non-breaching party may sue the breaching party for the damages incurred because of the breach in the contract. They may ask the breaching party to compensate them for all the damages incurred and consider the case closed. If the breaching party refuses, then the case will be brought to court.
- Have the breaching party complete or perform the specified lease agreement. There are breaches that are due to failure to perform the required activity or required performance from the breaching party. Once it has been done, the breach in the contract is said to have been settled.
- Other remedies. There are instances when the other party would just trick the people they are in a contract with just to be able to get them to it. This is not considered a legal contract because one party has been misled to believe in something that is not true. If this happens, the non-breaching party can go to court and convince them to make amendments to the contract or have it entirely terminated.
Contract breaches are avoidable if the terms and conditions in stipulated in a contract is understood and strictly followed. All of the parties involved should also be responsible enough to do their part in the contract.
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What Are the Different Types of Contracts?
There are a lot of different types of contracts that are being used these days. Some of them would be based on different categories with subcategories, and the list goes on. If you are a law student, you will need to know all of those categories and their subcategories. Since we are discussing this to gain knowledge about contracts, we can start learning the two most basic types of contracts, which is the verbal contract and the written contract.
We might not always encounter or hear about this kind of contract, but it does exist and it is being used. You didn’t know? You probably didn’t know that a verbal contract is a legal contract. You read it right. This type of contract works well if there are no disputes from the arrangement being agreed by the parties involved. Because this contract does not provide any documents or proof that the agreement occurred, a trusting relationship between the parties is important and its strength will be tested. Convenient as it may seem, verbal contracts have a lot of disadvantages, that is why they are not always the type of contract being used.
This is the widely used type contract, regardless of what the contract is all about. It is a document that contains all the details that has been discussed and agreed by the parties who are involved in the contract. Since every single detail is written on paper, it can be used as evidence or proof that the said transaction took place. It can even be presented in court when the need arises. This is the main reason why it is more preferred than verbal contracts. A distinct feature of a written contract that makes it hard to make are the clauses that are included and needed to be in it. Not knowing anything about these clauses may lead one into trouble.
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What Are the Benefits of a Written Contract?
Written contracts are the very thing that we get too cautious about. It’s as if we’re sacred of it for no reason at all. Now that you know what a written contract is, it’s about time that you learn about its many benefits. Stop your feelings of paranoia and read on.
- One of the important benefits of a written contract is that it serves as a proof of the transaction that took place, which has been agreed by the parties involved. Having a proof at hand is important because you will never know when you will need one to defend yourself if things go wrong.
- A written contract can help in the prevention of unwanted misunderstandings and any unnecessary disputes, most especially if they are written clearly and concisely.
- In businesses, a written contract gives the involved parties a piece of mind because they have assurance that the other party will do their part in the contract and follow the terms and conditions that has been agreed on.
- Long term contracts foster a trusting and long-lasting relationship between one party to another. Trusting who you are getting into a business contract with is important to make sure that things go as planned.
- Detailed information, such as payment arrangements and other specifications are included in a written contract, which serves as a guide for all of the parties involved. This way they won’t have to miss out on any important part of the agreement, so that they won’t violate any of its provisions.
- It states when the contract will officially start and when it will end. These are important dates as the contract will only be effective on the specific dates being stated.
- A written contract states what is expected from the parties that are involved, as well as the things that they are not allowed to do while the contract is effective.
- It mentions the names of the parties who are involved in the contract making sure that they are bound to the contract. Including the names of those involved in the contract binds them to it, and they are obliged to do whatever they can to follow everything that has been agreed on.
- A written contact is a summary or a record of everything about a certain contract. It doesn’t matter what type of contract it is, whether it be a business contract or a mortgage contract. This record is definitely useful whenever it is needed.
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Are There Risks of Not Having a Contract in Writing?
We already know why contracts are important and that is because of the many benefits that it provides to those parties involved in it. These benefits are all in favor of any parties involved. Now, there will always be the bad side. Here we have a list of some risks that you might want to know if ever you decide not to have a contract in writing.
- If you are an employer hiring employees for your business or company, you might get misunderstood with regard to pay and work required from the employer you are hiring. This is indeed a problem if no written contract can be provided.
- A lot of disputes and claims may arise because a clearly written contract is not available, thus it cannot be used to guide or provide and outline to all parties involved in that contract. Some parties would even take advantage of this kind of situation to be able to get something for themselves.
- Not having a written contract will make it seem like a fraud and it will not be accepted or enforced in court because of the fact that it may not exist. There is also no proof of the existence of the terms and conditions of the said contract.
If there are benefits in having a contract, there are also risks in not having one. It is a must that one carefully considers what they value most or what they find are in favor for their side. They should decide whether they take the underlying risks or heed the benefits that they can get from having a contract.
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What Are the Essential Elements That Makes a Contract Valid?
A legal contract can only be considered a valid contract if it includes all of the necessary and essential elements in it. The essential elements of a valid contract are provided below.
Offer and Acceptance
A contract would not be possible without these two very important elements. It is because a contract starts when one party offers something. If this offer gets accepted by another party, this is the time when a contract is formed. That is why it is important like no other.
Mutual Consent of All Parties Involved
A contract should be agreed upon by all of the parties involved in it, thus there should be a meeting of the minds. It means that they should mutually agree on the same terms and the same conditions that are stated in the contract.
All parties are expected to legally oblige to the terms and conditions of the said contract. This means that they should be prepared or ready to go to court and face any of the consequences thrown to them if the need arises. All parties should be responsible enough to make sure that they don’t violate or breach the contract.
Free Consent from All Parties Involved
When a contract is signed, it should be done freely by all of the parties who are trying to get involved in the contract. If one party has been forced into the contract, misled, provided false information, or if there was misrepresentation of facts, then the contract cannot be considered and called a valid contract.
Competency of All Parties in the Contract
A competent individual is someone who is of legal age, has a sound mind and most of all, that individual is not prohibited or disqualified by the law to join a contract. An individual who is incapable to decide on their own is not allowed to join a contract as they may make the contract invalid.
A valid contract is a legal contract. With that being said, a contract should not be something about or related to fraudulent activities, illegal activities, immoral acts, and things that are against any laws that are enforced.
Lawful consideration means that if one party gives something, the other party must also offer something in return of the same value. If one party offers something without anything in exchange, then that is called a gift and not a contract.
Not Expressly Declared as a Void Contract
Once a certain agreement is declared void, it can never be honored and considered as a valid contract. Trying to have a contract that has already been declared as void is a waste of time as it can never become a valid contract.
Possibility of Performance
A contract is considered valid if it is possible to have the terms and conditions performed. If the terms and conditions stated in a contract is something that is impossible to do, then it will not be called a valid contract. An example would be contract for creating a magically flown bike. Creating something like a magically flown bike is only possible in fairly tales and movies, but it is impossible in real life. Thus, its contract is not valid.
Certain Meaning of the Agreement
The meaning of each of the terms and conditions in a contract should be clear and concise. It should not cause confusion to all of the parties who are involved in it. This is one of the essential elements that makes a contract valid. If for some reason the contract is very confusing, ambiguous, or hard to understand, it may just yet be considered invalid.
There are contracts that can be done verbally and some need to be written. For a contract to be valid, it needs to follow the required legal formalities, such as complying to the requirements and have it registered to be recognized by the law.
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