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Contract Basics – What is a Contract? Is Your Agreement Legally Binding?

(May 21, 2012): Contract BasicsPeople unknowingly enter into contracts all the time – many more times than they may realize. As a business person, a homeowner, or even a recent graduate just renting an apartment, contracts are a part of our daily lives. Unfortunate.y, most individuals do not know the elements or contract basics. Therefore, it is important to learn and understand some contract basics, so that you will be in a better position to make informed legal decisions. Whether at the office or at home, whenever you or your company agrees to take some action or make a payment in exchange for anything of value, a legal contract has been created. Some examples of contracts are bills of sale, employment agreements, the provision of utility services such as gas or electric, loans, credit card agreements and other common business transactions. All of these, and more, are legally enforceable contracts.

I.  What is a Contract?

A contract is a legally enforceable agreement between two or more parties that creates an obligation to do or not do particular things. A “party” can be an individual person, a company, or a corporation. In addition, for contracts to be enforceable,they must almost always contain the following essential elements:

  • The parties have to be competent to enter into a contract. For example, a mentally disabled person could not enter into a contract.  Also minors may enter into contracts, but can void them in many cases before they reach majority age.

  • There has to be a mutual agreement by all parties (i.e. all parties have a meeting of the minds on a specific subject). Each party either promises to perform an act that the party is not otherwise legally required to perform, or promises to abstain from performing an act that it is otherwise legally entitled to perform.

II. Does a Contract have to be in Writing?

Requirements that a contract be in writing to be enforceable vary  from state to state. However, most contracts must be in writing if they involve: (i) the sale or transfer of real estate (for example, land or a house); (ii) the sale of goods valued at over $500 (for instance, a car or computer); and (iii) contracts that require more than a year to perform (i.e. a contract that takes more than 12 months to complete). This is known as the Statute of Frauds”.

III. Contract Basics Conclusion:

Contracts are important for both businesses and individuals alike. It is crucial that people understand the legal concerns of a contract before entering into it, because once you’ve signed, there is usually no going back. Knowing what a contract means, as well as what each individual provision means, might be the difference between having to pay for something you don’t want, or having to do something you didn’t expect to have to do.

Healthcare LawyerLeonard Schneider is a partner in the Houston office of Liles Parker PLLC. Mr. Schneider focuses on representing businesses and individuals in contract matters, business transactions, intellectual property issues, and municipal issues. Mr. Schneider can be reached at: 1 (800) 475-1906.

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