Understanding Contracts

Understanding Types of Contracts

A contract is a legally binding promise or set of promises. The law requires that the parties to a contract perform the promises they have made to each other. In the event of nonperformance--called a breach--the law provides remedies to the injured party.

Types of contracts
There are two main types of contracts: express and implied. An express contract is a contract in which all of the details are put into the contract. An implied contract is a contract that is not expressly spelled out, but which can be inferred from the circumstances.

Making a contract enforceable
The three basic elements of every contract are:

• the offer,
• the acceptance and
• the consideration.

Example: Suppose a salesperson shows a customer a Mustang convertible at an automobile lot and suggests that she buy it. (This is the offer.) The customer says she likes it and wants it. (This is the acceptance.) They agree on a price. (This is the consideration.) This example illustrates the basic framework of a contract, but a great many variations can be played on that theme.

Oral contracts
Contracts can be oral or written, but some oral contracts may not be enforceable (e.g., contracts for the sale of real estate must be in writing). In addition, oral contracts can be more difficult to prove. Generally, it is better to put all of your contracts in writing.

Essentials of a written contract
Good contracts should include certain information such as the names of the people or businesses contracting and the terms of the agreement. There are a number of clauses often included in contracts that you should be familiar with, including:

• Merger clause
• Arbitration clause
• Choice-of-law clause
• Forum selection clause
• Limitation of damages clause

Breach of contract
If either party to a contract doesn't live up to its promises, the contract is breached. There are several ways to enforce a contract, including negotiation, alternative dispute resolution and litigation. In addition, there are several remedies for breach. Generally, the objective of remedies for breach of contract is to put you in as good a position as you would have been if the other party had fulfilled the contract.