Types Of Contract And Principles Of Contract Formation

Introduction

A Contract is a pledge that is enforceable by the law. The pledge could be to either perform or refrain from an act. Creating a contract needs the mutual consent of two or more people, one who makes an offer (Seller) and another of who accepts (Buyer). When one party fails to deliver on the agreement, the other party is entitled to legal recourse. Contract law addresses things such as whether a contract exists, what it entails, when the contract has been violated, and what reimbursement the injured party receives.

· There are five rules that must be followed when making a contract:

1. Must have a legal purpose and cannot be used for illegal purposes
2. Must be a mutual agreement between the parties.
3. Consideration. Both parties must be in agreement to provide something of value in exchange for the contract.
4. Parties must be legally competent. Minors and mentally impaired cannot validly contract.
5. All parties must come to an agreement based on their own will.

A contract is commonly seen as a source of business, source for good & services, risk management tool, and a project. The purpose of the contract can be condensed to two roles: mitigating the risk of a project by offering legal concept and developing partnerships. A contract has two aspects:

• Document: The physical form of the pledge between participants
• Relationship: An oral or physical understanding of the commitment that is formed between the participants (personal or professional).

Process

To be considered valid, certain contracts must be in written format, such as contracts involving a large sum of money (over $500). Contracts are very commonly used in everyday life. Therefore, knowing the laws that control them is key to ensuring that you have a legitimate contract.

All legitimate contracts must essentially follow the following format:

1. An offer (ex. Buy 5k teddy bears for $6k)
2. Acceptance of offer presented (Accepts the $6k for 5k teddy bears)
3. An agreement to perform (Seller with put together order)
4. A valuable payment ($6K)
5. Specified time or an date when the performance must be completed (order will be delivered in 1 month)
6. Terms and conditions for the performance (Teddy bears must be brown and 6 ft tall)
7. Performance (Order is delivered to buyer and seller receives $6k)

The is a process when creating a contract that is usually titled as Contract Management Process. This process is broken into three stages:

1. Pre-Award: Where the planning, scoping, and development of the contract occurs.
2. Award: Where negotiations and signing happens between the participating parties.
3. Post-award: Where the agreement is monitored, performed, and the contract is completed.

Types

There are many different types of contracts that are created and used for both personal and professional purposes. Some of the common types are the following:

1. Unilateral Contract: Only one party promising to perform an action or provide something of value. One-sided contract.
2. Bilateral Contract: Where both parties agree to trade goods or services of value. Two-sided contract.
3. Express contracts: Where the terms are stated clearly, written or oral, at the time the contract is formed.
4. Conditional contracts: Only enforceable the agreement or condition is completed. Also called a hypothetical contract.
5. Joint and several contracts: Multiple parties are involved.
6. Implied contracts: Terms that are implies either in fact (obligations and promised intentions are created but not expressed in words.) or in law (also known as a quasi-contract because the contract is not a real legal agreement).
7. Unconscionable contracts: an unfair type of contract where the party that is superior in the negotiations has an advantage.
8. Adhesion contracts: Where one party more bargaining power than another and only offers the other party to either accept or reject the contract. A “take it or leave it” situation.
9. Option contracts: Allows a party to enter another contract with another party at a later time. Enters into a second contract.
10. Fixed prices contracts: Where the buyer and seller agree to a fixed price for the project.
11. Aleatory Contracts: agreements that are not triggered until an outside event occurs (Insurance policies, Prenup/premarital agreement).

Conclusion

While there are many types of contracts and situations that they can used for, both personal and professional, the process, key rule, and the layout remain similar among all contracts. Contracts a part of our daily lives that will continue to encourage people to work with or for others while providing a legal safety net for all participants.