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What You Should Know About Contract Law

Author: Henry Adams

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Contracts are one of the most common things when running a business. Every time that your company receives something (like a service, product or money) in exchange for giving something else, a new legal contract is born.

Some common examples of legal contracts are purchase orders, employment agreements, bills of sales, and other documents that most people usually don’t consider as legally enforceable contracts.
In civil law, contracts are considered to be part of the general law of obligations. The law generally sees performance of a contract as a duty.

A contract can be defined as an agreement between two or more parties that creates an obligation over a set of promises. The word “party” can mean a person, corporation or company.

The laws of the state where the agreement is taking place usually govern the contracts, and depending on the subject of the contract (sales-related, employment, etc.), it can be governed by one or two types of state laws. Almost all contracts (leases, general business, etc.) are governed by the state’s “common law”, that is a set of laws constantly evolving and addresses four main issues: When and how is a contract formed, when may a party escape obligations of a contract, what is the meaning and effect to be given to the terms of a contract and what is the remedy to be given for breach of a contract. Contracts for the sale of goods are not controlled by the common law. These kinds of contracts are controlled by the Uniform Commercial Code, which governs the law of commerce.

According to the law, a new contract is formed when there is an agreement, which consists of an offer and acceptance, consideration and contractual intention. In other words, there has to be an offer, acceptance of that offer, and sufficient "consideration" to make the contract valid.

Contrary to common wisdom, an informal exchange of promises can still be binding and legally as valid as a written contract. But in certain situations it is highly recommended, and sometimes even necessary, to have a written contract. The situations where having a written contract is obligated, can vary from state to state, but usually include transfers of real estate, sales of goods valued at over a certain amount of money, and contracts that require more than a year to perform. Having a written contract is recommended because it gives your proof of the agreement, and avoids having someone change something later.

You don’t always need a lawyer to write your own business contracts, but there will be situations where is better to let the lawyer handle that part. If the agreement is not very complex you may want to write your own contract, but if there’s much at stake, you need a lawyer to help you.

Disputes could arise over contracts, and one or more of the parties involved in the agreement may accuse others of breaking the terms specified in the contract. In the law this is known as “breaching” the contract. If a breach of contract happens, the parties affected will want the contract “enforced” on its terms. If informal negotiation fails, the most common form to resolve business disputes and enforced contracts is through binding arbitration, and lawsuits. But before attempting to enforce a contract it is convenient to analyze how this action will affect a long-term business relationship.

About Author

Henry Adams is a legal consultant with http://www.legalformsguide.com legal information for small businesses and http://www.incparadise.com Incorporation services at http://www.incparadise.com

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