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Key elements of a contract and how to navigate them

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Updated on:
May 17, 2023
Table of contents

Ultimate takeaway

Understanding the elements of a contract and dispelling common misconceptions about contracts helps businesses navigate contractual relationships effectively. Seeking legal advice or consulting professionals experienced in contract law can provide further guidance on specific contractual matters. Using legally endorsed contract creation solutions to build and manage your contracts with your clients will save you time, money and save you from potential legal setbacks.

Part 1: Introduction

First - what is a contract? A contract is a legally binding agreement between two or more parties that outlines the rights and obligations of each party involved. A contract can either be created from scratch or a contract can be built from a legally reviewed contract template. It establishes the terms and conditions under which the parties either agree to perform an act or refrain from one. 

Contracts can be written or oral, although written contracts are generally preferred as they provide a clearer record of the agreement.

Why are contracts important?

Contracts are absolutely critical for self-employed professionals for a number of reasons.

  1. Clarity and protection: Contracts provide clarity and define the expectations and responsibilities of each party. By specifying the terms and conditions, contracts help prevent misunderstandings and disagreements that may arise in the future. They also serve as legal protection for both parties in case of breach or non-compliance.
  2. Legal enforceability: Contracts are legally enforceable documents. Suppose one party fails to fulfill their obligations as outlined in the contract. In that case, the other party has legal remedies available to seek compensation or specific performance. Contracts provide a framework for resolving disputes and ensure that parties have legal recourse if an agreement is violated.
  3. Risk allocation: Contracts allow parties to allocate risks associated with a particular transaction or business relationship. By clearly defining the rights and responsibilities of each party, contracts provide a mechanism to manage and mitigate potential risks.
  4. Define scope: Quite simply, contracts define the rules of engagement. They specify what needs to done, and by when to help minimize scope creep.
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Role of contract law

Contract law plays a crucial role in the enforcement and interpretation of contracts. It is a branch of law that governs contract formation, validity, interpretation, and enforceability. 

Contract law provides a framework for parties to enter into agreements. It ensures that the terms of the contract are fair and reasonable. The role of contract law includes:

  1. Formation of contracts: Contract law establishes the requirements for a valid contract, such as mutual assent, consideration, capacity, and legality.
  2. Interpretation: Contract law helps interpret the terms of a contract when a dispute arises. It looks at the parties' intent, the contract language's plain meaning, and any applicable legal principles to determine the rights and obligations of each party.
  3. Enforcement: Contract law provides mechanisms for enforcing contracts and seeking remedies in case of a breach. This may include monetary damages, specific performance, or other appropriate relief.
  4. Protection of parties: Contract law seeks to protect the interests of both parties involved in a contract. It ensures that contracts are entered into voluntarily and without coercion, and it provides a means to challenge unfair or unconscionable contracts.

Part 2: Offer and acceptance

An offer is a crucial element in the formation of a contract. It is a proposal made by one party to another party expressing a willingness to enter into a contract on specific terms. The offer sets out the essential terms of the contract, such as the subject matter, price, quantity, and duration.

What makes a valid offer?

To make a valid offer, certain elements must be present:

  1. Intention: The offeror must intend to create a legal obligation. If the offer is merely a statement of opinion, an invitation to negotiate, or a joke, it may not be considered a valid offer. In other words, stick to concrete, tangible statements only.
  2. Definiteness: The offer must have clear and specific terms. It should include all essential details necessary for the offeree to understand and accept the offer. Vague or ambiguous offers may not be enforceable. Think about terms here - how much are you charging for your services? What exactly will you commit to deliver to your client?
  3. Communication: The offer must be communicated to the offeree. It can be conveyed through various means, such as in person, in writing, by phone, or through electronic communication. Using digital methods can really be advantageous from a documentation and efficiency standpoint, allowing you to make modifications quickly and at no/low-cost.

A contract requires agreement between parties, fair and acceptable terms to both sides, payment medium (money for hours or duration of project), milestones, and signatures and dates. These are minimum requirements however. Many things are often overlooked during the course of contract creation. Using customizable contract templates that are legally vetted and designed to protect you from can greatly alleviate the stress of reviewing your contract to make sure it contains every single relevant clause. Moreover, choosing a format that is modifiable can help you set the terms that make the most sense for your business.

Bonsai's online contract maker allows you to seamlessly modify contracts template clauses or eliminate sections that don't pertain to you.

Acceptance

Acceptance is the unqualified and unequivocal agreement by the offeree to the terms of the offer. It indicates the offeree's willingness to be bound by the terms of the contract proposed by the offeror. Acceptance can be communicated in different ways:

  1. Express Acceptance: This occurs when the offeree clearly and explicitly accepts the offer, either orally or in writing. For example, responding with "I accept" or signing a written contract.
  2. Implied Acceptance: In some cases, acceptance can be implied from the conduct of the offeree. If the offeree acts in a manner that demonstrates acceptance of the offer, it can be considered implied acceptance. 

Timing and acceptance

Timing is an important aspect of offer and acceptance. For a contract to be formed, the acceptance must be communicated to the offeror while the offer is still valid. 

The general rule is that acceptance must be made within a reasonable time after receiving the offer. However, the offeror may specify a specific time limit for acceptance in the offer itself. In such cases, acceptance must occur within that timeframe.

Additionally, the concept of the "mailbox rule" is relevant to timing in contract formation. According to this rule, acceptance is generally effective when it is properly dispatched by the offeree, even if it is delayed or lost in transit. This means that acceptance is considered valid upon posting rather than upon receipt by the offeror.

Timing is crucial because if the offeree accepts after the offer has lapsed or expired, it will not create a binding contract. Moreover, if the offeror revokes the offer before acceptance or if the offeree rejects the offer, the opportunity for acceptance is lost.

Part 3: Consideration

Consideration is a fundamental concept in contract law. It refers to something of value that is exchanged between the parties to a contract. Consideration can take various forms, including money, goods, services, promises, or refraining from doing something that one has a legal right to do.

Consideration is the bargained-for exchange that forms the basis of a contract. It is the mutual exchange of something valuable between the parties involved. 

Consideration distinguishes a contract from a mere gift or gratuitous promise, as it demonstrates that the parties have entered into the agreement with a willingness to give and receive something in return.

Adequacy and determining consideration

Consideration is determined by looking at what each party provides or promises to provide in the contract. For example, if Party A promises to pay Party B a certain amount of money in exchange for Party B delivering a product, the payment and the delivery of the product are the respective considerations.

Generally, contract law does not require that the value of the consideration be equal or equivalent. This principle is known as the doctrine of adequacy of consideration. 

As long as there is some consideration, the courts do not typically inquire into the fairness or adequacy of the value exchanged. However, exceptionally unfair or unconscionable agreements might be scrutinized in certain circumstances.

Exceptions when consideration is not required

There are certain situations where consideration is not required to form a valid contract:

  1. Promissory estoppel: In some cases, a promise may be enforceable even without consideration if the party making the promise should reasonably expect the other party to rely on it and the other party does rely on the promise to their detriment. This concept is known as promissory estoppel.
  2. Contracts under seal: In some jurisdictions, contracts executed under seal, or "contracts by deed," may be enforceable without the need for consideration. These types of contracts require a formal seal or stamp to signify their importance.
  3. Pre-existing legal obligation: Generally, a promise to perform or refrain from performing an existing legal duty is not valid consideration. However, there are exceptions to this rule, such as when additional consideration is provided or when there is a genuine modification of the existing contract.

Consideration is closely linked to other elements of a contract. It is often tied to the offer and acceptance, as the consideration forms the basis of the bargained-for exchange. Without consideration, there is a risk that a promise may not be enforceable as a contract. 

Additionally, consideration is also related to the intention to create legal relations, as it demonstrates that the parties have intended to enter into a legally binding agreement.

Part 4: Intention to create legal relations

The intention to create legal relations is a concept that examines whether the parties to an agreement intended for their agreement to be legally binding and enforceable. This is exactly what you'd want as either a self-employed professional or as a client. It ensures that there is recourse if you do not get paid or that the client has means to enforce the contract if he/she does not get what is outline in the terms.

It assesses whether the parties intended to enter into a legally binding contract or whether their agreement was of a social, domestic, or informal nature.

Intention to create legal relations refers to the parties' objective to be legally bound by their agreement. It determines whether a contract exists or whether the agreement is merely a social arrangement, courtesy, or domestic understanding that does not give rise to legal obligations.

Express vs. Implied intention

Intention can be expressed or implied. Express intention is explicitly stated by the parties, either orally or in writing. For example, a statement such as "I agree to sell you 50 hours of my time for consulting services for $5,000" clearly expresses the intention to create a legal relationship. 

Implied intention is inferred from the circumstances surrounding the agreement and the conduct of the parties. Courts will examine the nature of the agreement, the parties' relationship, and their behavior to determine whether there was an intention to be legally bound.

Social and domestic agreements

Social and domestic agreements are typically presumed not to have the intention to create legal relations. These agreements are usually based on trust, friendship, or family relationships rather than a commercial or legal context. 

For instance, agreements between friends to meet for dinner or relatives to help each other with household chores are considered social or domestic arrangements where legal enforcement is not expected.

Impact on contract validity

The presence or absence of intention to create legal relations affects the validity of a contract. If the parties had a genuine intention to create legal relations, their agreement could be considered a valid contract. 

It means the parties can seek legal remedies in case of a breach. However, if the intention is lacking, the agreement may be viewed as a non-binding arrangement, and the parties cannot enforce the terms through legal means.

Part: 5 Capacity

Capacity in contract law refers to a person's legal ability to enter into a contract and be bound by its terms. 

It involves assessing whether the parties involved have the mental and legal competence necessary to understand the rights, obligations, and consequences of entering into a contractual agreement.

Capacity is the legal ability of a person to enter into a contract. It ensures that the parties have the mental and legal competence to understand the nature of the contract, the rights and obligations involved, and the consequences of their actions.

Who has the capacity to contract?

Generally, individuals who have reached the age of majority are presumed to have the capacity to enter into a contract. They are considered legally competent to understand and be bound by the terms of an agreement. 

In contrast, certain individuals may lack the capacity to contract, including minors, mentally incapacitated individuals, and those under the influence of drugs or alcohol.

Determining capacity

Capacity is determined based on legal principles and guidelines. The general rule is that individuals are presumed to have capacity unless proven otherwise. 

However, in cases where a person's capacity is in question, courts may consider factors such as age, mental competency, intoxication, and the nature of the contract to assess whether the person had the requisite capacity.

Consequences of contracting without capacity

If a person lacks the capacity to contract, the contract may be void or voidable, depending on the circumstances. Void contracts are considered invalid from the beginning and have no legal effect. 

Voidable contracts, on the other hand, may be either affirmed or avoided by the party lacking capacity or their legal representative. For instance, a minor may choose to affirm or disaffirm a contract once they reach the age of majority. Be careful in this scenario as it has the ability to upend the terms and conditions you set forth in the contracts you create with your clients.

Effect on contract validity

The capacity of the parties is a crucial element in determining the validity of a contract. The contract may be deemed unenforceable if any party lacks the necessary capacity. 

For example, a contract entered into with a minor may not be enforceable against the minor. However, it may be enforceable against the adult party. Additionally, contracts entered into by mentally incapacitated individuals or those under the influence of drugs or alcohol may also be voidable. This is why it's never a good idea to finalize contract negotiations over drinks, not even the signature, as it can be revisited as an extenuating circumstance to null and void your contract.

Part 6: Legality

Legality is a fundamental requirement for a contract to be valid and enforceable. A legal contract is one that complies with the laws and regulations of the jurisdiction in which it is formed. It means that the purpose and performance of the contract must not involve any illegal activities or be against public policy.

What makes a contract legal?

A contract is legal when its purpose and performance are lawful. This means that the subject matter and the actions required under the contract must not violate any laws, regulations, or public policies. Furthermore, it should not involve illegal activities, such as fraud, theft, or illegal substances.

Role of public policy in contracts

Public policy considerations are crucial in determining the legality of a contract. Public policy refers to the principles and values that underpin society's legal system. Contracts that are contrary to public policy, meaning they harm the public interest, may be deemed illegal and unenforceable. 

For example, contracts that promote illegal activities, violate human rights or are against public welfare may be considered against public policy.

Effect of illegality

If a contract is found to be illegal, it may be void or unenforceable. Illegality can invalidate the entire contract or render certain provisions unenforceable, depending on the severity and nature of the illegality. 

Parties to an illegal contract may not have legal remedies available to them, and they may face penalties or legal consequences for their involvement in the illegal activity.

Examples of illegal contracts

Contracts involving illegal activities or against public policy can be considered illegal. Some examples include:

  1. Contracts for the sale or distribution of illegal drugs. 
  2. Contracts for illegal gambling activities. 
  3. Contracts that involve fraudulent or deceptive practices. 
  4. Contracts that violate competition laws, such as price-fixing agreements. 
  5. Contracts that promote discrimination or violate civil rights.

Ensuring a contract is legal

To ensure that a contract is legal, it is essential to consider the following steps:

  1. Familiarize yourself with the relevant laws: Understand the laws and regulations applicable to the subject matter of the contract to ensure compliance.
  2. Seek legal advice: If in doubt, consult with a qualified attorney who can provide guidance and assess the legality of the contract. Bonsai's legally reviewed contracts can keep you protected so you can begin your projects with clients with complete peace of mind.
  3. Draft clear and lawful terms: Ensure that the terms and provisions of the contract do not contravene any laws or public policy. Be specific about the rights and obligations of each party.
  4. Regularly review and update: Keep abreast of changes in the law that may affect the contract's legality and make necessary updates to ensure compliance or use contract software that regularly reviews their contract templates to ensure that contracts are always compliant.

Part 7: Consent

Consent is a crucial element in contract law and refers to the voluntary and mutual agreement of the parties involved. It ensures that the parties have freely and knowingly agreed to the terms of the contract without any undue influence, coercion, or misrepresentation.

Consent is the voluntary and mutual agreement of the parties to enter into a contract. It requires that each party understands the terms and freely agrees to be bound by them. Consent implies that the parties have the legal capacity to contract and have not been subject to any unfair influence or misrepresentation.

Giving consent

Consent can be expressed or implied. Express consent is explicitly stated, either orally or in writing. Implied consent is inferred from the conduct or actions of the parties. 

For example, signing a written agreement or providing acceptance through conduct can indicate consent.

Mistakes and misrepresentation

Mistakes and misrepresentation can affect the validity of consent:

  1. Mistake: A mistake occurs when one or both parties have an incorrect understanding of a material fact relating to the contract. Mistakes can be unilateral or mutual. In certain cases, a contract may be void or voidable if a mistake significantly affects the terms of the agreement.
  2. Misrepresentation: Misrepresentation occurs when one party makes a false statement or conceals material information, inducing the other party to enter into the contract. If a party relies on the misrepresentation and is harmed. As a result, the contract may be voidable at the innocent party's option.

Duress and undue influence

Duress and undue influence involve situations where consent is obtained through coercion or improper pressure:

  1. Duress: Duress occurs when a party is forced or threatened into entering a contract against their will. If consent is obtained through duress, the contract may be voidable at the innocent party's option.
  2. Undue influence: Undue influence happens when one party takes advantage of a position of power or trust to manipulate the other party into entering a contract. If consent is obtained through undue influence, the contract may be voidable at the innocent party's option. Though rarely the case, this can come up if you are already doing work for your client without a contract in place.

How lack of consent affects contract validity

The contract may be voidable if consent is lacking or defective due to mistake, misrepresentation, duress, or undue influence. The innocent party can rescind the contract, treat it as if it never existed, or seek remedies for the harm caused by the lack of consent. 

However, if the innocent party affirms or ratifies the contract after discovering the lack of consent, their ability to challenge the contract's validity may be compromised. It's important to note that laws regarding consent and its effects on contract validity may vary between jurisdictions.

Part 8: Writing

Written contracts play a significant role in providing clarity, evidentiary value, and enforceability in contract law. However, not all contracts are required to be in writing.

When is a contract required to be in writing?

The requirement for a written contract, often referred to as the "Statute of Frauds," varies depending on the jurisdiction and the nature of the agreement. Generally, the following types of contracts must be in writing to be enforceable:

  1. Contracts involving the sale or transfer of real property. 
  2. Contracts that cannot be performed within one year from the date of formation. 
  3. Contracts for the sale of goods above a certain monetary threshold, as per the UCC (Uniform Commercial Code). 
  4. Contracts involve the guarantee or promise to pay another person's debt. e. Contracts related to marriage, such as prenuptial agreements.

What must be included in a written contract?

A written contract should include essential elements to make it enforceable, such as:

  1. Identification of the parties involved. 
  2. Clear and specific terms and conditions. 
  3. Description of the subject matter and purpose of the contract. 
  4. Consideration is exchanged between the parties. 
  5. Signatures or other forms of authentication, which may vary depending on the jurisdiction and the type of contract.

How a written contract can be modified

A written contract can be modified through mutual agreement between the parties. The modification can be in writing or oral, depending on the specific terms and conditions of the original contract and any applicable laws.

 However, it is generally advisable to document any modifications to a written contract in writing to avoid potential disputes.

The role of signatures in written contracts

Signatures play a significant role in validating written contracts. They demonstrate the parties' intention to be bound by the terms of the agreement. 

Traditional signatures involve handwritten names or initials, but electronic signatures and other forms of authentication are also legally recognized in many jurisdictions. The specific requirements for signatures may vary depending on local laws and regulations.

Tip: Use this free online signature tool to easily e-sign your documents

online signature maker

Electronic contracts – What are they?

With technological advancements, electronic contracts have gained recognition and legal validity in many jurisdictions. Electronic contracts are formed, signed, and stored electronically without the need for physical paperwork. 

They are subject to specific legal requirements, such as consent, authentication, and record-keeping. Laws such as the Electronic Signatures in Global and National Commerce Act (ESIGN Act) in the United States and the eIDAS Regulation in the European Union provide legal frameworks for electronic contracts.

It is important to note that contract laws related to writing and electronic contracts may vary across jurisdictions. It is advisable to consult with legal professionals to understand the specific requirements and regulations applicable in a particular jurisdiction.

Part 9: Performance

Performance in contract law refers to fulfilling the obligations and promises outlined in a contract by the parties involved. It involves the parties carrying out their respective duties and responsibilities as specified in the contract.

Performance is the act of fulfilling the obligations and promises made under a contract. It involves the parties meeting their respective responsibilities, whether they involve delivering goods, providing services, or any other agreed-upon actions.

When is performance due?

The timing of performance is typically specified in the contract itself. It may involve specific dates, a fixed period, or completion upon the occurrence of certain events. 

Parties are generally expected to perform within the agreed-upon timeframe unless the contract allows for reasonable extensions or provides for other conditions.

Breach of contract

Breach of contract is when a party does not do the obligations which they were meant to perform under the contract.

It can take different forms, including non-performance, defective performance, or an anticipatory breach where a party indicates an intention not to perform before the performance is due.

Remedies for breach of contract

When a breach of contract occurs, the innocent party may be entitled to seek remedies to address the harm suffered as a result. Common remedies for breach of contract include:

  1. Damages: Monetary compensation intended to put the innocent party in the position they would have been in if the breach had not occurred. Depending on the circumstances, damages can be compensatory, consequential, or punitive.
  2. Specific performance: A court order requiring the breaching party to fulfill their obligations as specified in the contract. This remedy is typically used when monetary damages are inadequate or impractical.
  3. Rescission: The contract is declared void, and both parties are released from their obligations. This remedy is typically used when the breach is significant or fundamental, and the parties want to restore the pre-contractual position.
  4. Reformation: The court may rewrite or modify the contract's terms to reflect the parties' true intentions. This remedy is used when there is evidence of a mutual mistake or ambiguity in the contract.

Excuses for non-performance

Certain circumstances may excuse a party's non-performance or delay in performance under a contract. These are known as legal defenses or excuses for non-performance. Common examples include:

  1. Force majeure: When performance becomes impossible or impractical due to unforeseen events beyond the control of the parties, such as natural disasters, war, or government actions.
  2. Impossibility: When an unforeseen event makes performance objectively impossible, such as the destruction of the subject matter of the contract.
  3. The frustration of purpose: When an unforeseen event fundamentally changes the purpose or value of the contract, making performance pointless or radically different from what was initially intended.
  4. Mutual agreement: Parties may mutually agree to modify or terminate the contract, provided that such agreement is supported by valid consideration.

Part 10: Discharge

In contract law, discharge refers to terminating or releasing the parties' obligations and rights under a contract. It signifies the end of the contractual relationship and the parties' freedom from further performance

How a contract is discharged

A contract can be discharged in several ways:

  1. Performance: The contract is discharged when both parties fulfill their respective obligations as specified in the contract.
  2. Agreement: The parties may agree to terminate the contract by mutual consent, rescission, or novation. Rescission involves canceling the contract from its inception. At the same time, novation replaces one party or obligation with a new party or obligation.
  3. Breach: If one party breaches the contract, the innocent party may have the option to discharge the contract and seek remedies for the breach.
  4. Frustration: Frustration occurs when an unforeseen event beyond the parties' control makes the contract's performance impossible, illegal, or radically different from what was initially contemplated.
  5. Operation of law: Discharge may occur by operation of law due to reasons such as bankruptcy, the expiration of a fixed term, or the completion of the purpose of the contract.

Types of discharge

Contracts can be discharged either by being fully performed or by agreement, breach, frustration, or operation of law. 

Discharge by performance is the most common method, where both parties fulfill their obligations and the contract comes to an end.

The role of frustration and impossibility in discharge

Frustration and impossibility can lead to the discharge of a contract:

  1. Frustration: Frustration occurs when an unforeseen event after the contract's formation renders the contract's performance impossible, illegal, or fundamentally different from what was initially contemplated. The contract may be discharged in such cases, and the parties are released from obligations.
  2. Impossibility: Impossibility refers to situations where performance becomes objectively impossible due to an unforeseen event, such as the destruction of the subject matter or the death or incapacity of a necessary party. If an event makes performance truly impossible, the contract may be discharged.

The effect of discharge on the parties' obligations

Once a contract is discharged, the parties are relieved of their future performance obligations. 

They are no longer required to fulfill the terms and conditions outlined in the contract.

How discharge affects the validity of a contract

Discharge does not affect the validity of a contract for the period it was in effect. It merely brings an end to the future obligations of the parties. The discharge does not undo the past performance or any rights or obligations that may have accrued prior to the discharge.

It's important to note that contract laws related to discharge may vary between jurisdictions, and the specific terms of the contract may also influence the process of discharge. It is advisable to seek legal advice to understand the specific requirements and implications of discharge in a particular situation.

Conclusion

Contracts are an essential part of everyday life, as they govern numerous transactions and agreements. Understanding the key elements of a contract is crucial to ensure its validity and enforceability. Let's recap the 10 key elements discussed earlier:

  1. Agreement: The parties must have a mutual understanding and reach an agreement on the essential terms and conditions of the contract.
  2. Offer and acceptance: One party makes an offer, and the other party accepts it, creating a meeting of the minds and forming a contract.
  3. Consideration: A legal benefit or detriment must be exchanged between the parties as the basis for the contract.
  4. Intention to create legal relations: The parties must intend for the contract to have legal consequences and be binding upon them.
  5. Capacity: The parties involved must have the legal capacity to enter into a contract, meaning they must be of sound mind and have the legal authority to do so.
  6. Legality: The purpose and subject matter of the contract must be legal and not against public policy.
  7. Consent: The parties must give their genuine and voluntary consent to enter into the contract without any duress, undue influence, mistake, or misrepresentation.
  8. Writing: Some contracts must be in writing to be enforceable, depending on the nature of the agreement and applicable laws.
  9. Performance: The parties must fulfill their respective obligations as specified in the contract.
  10. Discharge: The contract may be discharged by performance, agreement, breach, frustration, or operation of law, bringing the contractual relationship to an end.

Why you should understand and consider these elements of a contract

Understanding these elements is important for several reasons:

  1. Validity and enforceability: Understanding the elements of a contract helps ensure that the contract is valid and enforceable. It allows parties to create contracts that will hold up in court and be legally binding.
  2. Rights and obligations: Knowing the elements helps parties understand their rights and obligations under the contract. It allows them to fulfill their obligations and assert their rights if there is a breach.
  3. Risk mitigation: Understanding the elements helps parties identify potential risks and pitfalls associated with the contract. It allows them to negotiate and draft contracts that protect their interests and minimize the likelihood of disputes.

What are common misconceptions about contracts?

Common misconceptions about contracts include the following:

  1. Oral Contracts are not enforceable: While written contracts are generally recommended for clarity and evidentiary purposes, oral contracts can still be legally binding in many situations. However, proving the terms of an oral contract may be more challenging compared to a written contract.
  2. Contracts must be lengthy and complex: Contracts can vary in length and complexity depending on the nature of the agreement. Simple contracts that cover the essential terms can be just as enforceable as complex ones.
  3. All contracts must be in writing: While certain types of contracts must be in writing to comply with the Statute of Frauds or other legal requirements, many contracts can be formed orally or through the parties' conduct.
  4. Verbal agreements hold no weight: Verbal agreements if supported by the essential elements, can be legally binding. However, it is generally advisable to have contracts in writing to avoid misunderstandings and disputes. Read on to learn more about verbal agreements and their legality in defining contracts.

Part 12: FAQs

If you are still confused regarding certain elements of a contract, then these frequently asked questions may have the answers you seek.

What is the difference between an express and implied contract?

An express contract is one in which the terms and conditions are stated orally or in writing in an explicit manner. The parties involved expressly communicate their intentions and obligations. 

In contrast, an implied contract is formed through the conduct of the parties or inferred from the circumstances. The terms are not explicitly stated but are implied based on the parties' actions or the nature of their relationship.

Can a contract be verbal?

Yes, a contract can be verbal and legally binding in many situations. However, certain types of contracts, such as those involving the sale of real estate or agreements that cannot be performed within a year, may need to be in writing to comply with the Statute of Frauds or other applicable laws.

What is an example of a contract that would not be legally binding?

A contract involving illegal activities, such as a contract for selling illegal drugs, would not be legally binding. 

Contracts that lack the essential elements, such as mutual consent, consideration, or capacity, may be deemed invalid or unenforceable.

What is the statute of fraud?

The statute of fraud is a legal principle that requires certain types of contracts to be in writing in order to be enforceable in a court of law. 

It typically applies to contracts involving the sale of real estate, agreements that cannot be performed within one year, contracts for the sale of goods above a certain value, and guarantees or promises made by a third party to pay the debts of another.

Can a contract be modified after it has been signed?

Yes, a contract can be modified after it has been signed, provided that both parties agree to the modification and there is sufficient consideration or another valid legal basis for the modification. 

It is recommended to document any changes in writing to avoid potential disputes regarding the modified terms.

What is the difference between a condition and a warranty in a contract?

In contract law, a condition is a vital term that goes to the root of the contract and its performance. If a condition is not met, it may give the innocent party the right to terminate the contract or seek remedies. 

A warranty, on the other hand, is a less crucial term that does not go to the heart of the contract. If a warranty is breached, the innocent party may be entitled to claim damages. Still, it may not have the right to terminate the contract.

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