LEGAL DICTIONARY

Contract

A legal contract is a signed agreement between two or more parties that is enforceable by law. Contracts are used for a broad range of purposes in the world of finance, business, and real estate.

Knowing how to use a contract and understanding the implications of signing or breaking an agreement of this kind is crucial. Most contracts make life easier for parties looking to form an ongoing arrangement, although misuse and misunderstandings can derail these accords.

The most important thing a contract must do is adhere to the law. You should always avoid signing legal agreements that require outright illegal acts to be committed or that do not follow appropriate local and federal regulations. Doing so risks rendering the contract invalid and making it unenforceable.

In order to make a contract legal, you must ensure that the parties involved are correctly detailed and the nature of the arrangement between them is properly described. You will also need to make sure that you include any necessary clauses, addendums, and declarations so it is fully legally binding.

A binding contract will usually contain the following information:

  • The names and addresses of both parties
  • The duties of each party
  • The contract start and end dates
  • Any money that will be exchanged and when it is due
  • Terms that must be met
  • Any warranties, special clauses, or addendums
  • An outline of any dispute resolution (such as ADR) if there is a breach
  • Both parties’ signatures

Using a standard contract template is recommended during the drafting process. This will help you correctly structure the document, include important declarations that are needed by law, and allow you to enter the information needed in the right places.

It is also important to make sure that you define the parties and their duties clearly. Allowing too much openness to interpretation could create loopholes in the contract.

What Are the Most Common Types of Contracts?

Contracts are used in all walks of life for all sorts of different purposes. They can be put into action for major financial arrangements or for real estate issues such as rental contracts.

Some of the most common types of contracts used by businesses and individuals include the following:

Bilateral Contracts Vs. Unilateral Contracts

The vast majority of contracts are bilateral in nature, where at least two parties make a promise to one another. However, unilateral deals also exist where only one party agrees to uphold the terms of a legal agreement in exchange for an act (such as paying a fee).

For example, it is common for insurance contracts to be unilateral in nature. This is because they make a legal commitment in exchange for the premium paid by the customer.

What Happens in the Case of a Breach of Contract

Breaching a contract can have serious consequences. The written agreement will usually detail the steps that must be taken if any party doesn’t fulfill their obligations.

Under most contracts, sanctions can be applied in a breach such as:

  • Penalty fees
  • Being obliged to honor the contract
  • Immediate termination of the agreement

However, if the breaching party refuses to comply with the agreement at all legal action may become necessary. If all other attempts at resolution have failed the injured party could sue for damages.

Read More: How to make a contract legal?