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The Basics of Business Contracts and Agreements

The Basics of Business Contracts and Agreements

What is a contract?

Contracts and agreements are important for any size of business. Earlier, there were few written business contracts, and often the business and personal deals were done verbally with a handshake. In case of any dispute, the two parties could take the issue to court, even if the contract was not put into writing.

Though a verbal contract is still legally accepted, contracts are preferred to be documented in written form. These day’s contracts are very detailed and every effort is made to make all possibilities and eventualities clear.

Contracts should be Implementable

In addition to being clear and specific, a contract must meet certain criteria to make it legally enforceable. A legally enforceable contract can be produced in court in case of any disputed item. Unless, the contract has the accepted requirements, it cannot be legally enforceable. Most of the contracts aren’t produced in court and they could easily be verbal unless there is a specific reason for a written contract. If any altercation occurs or something goes wrong, a written contract can protect both parties. So, any breach of contract from either party, can be taken to courts.

The legal process, or litigation, determines whether the contract has been breached or whether there are circumstances that negate the breach. The court, accepts a contract dispute case only if the contract is valid.

Essentials of Business Contracts

There are six essential elements for a contract to be valid which can be enforced by a court, and broadly classified in two parts for any contracts.

  • The first relate to the agreement itself,
  • The relate to the parties making the contract.

Offer, Acceptance, and Mutual Consent

Every contract has to include and specify about the offer and show acceptance of that specific offer. The parties would have to show consent with their free will. Either party cannot be coerced or pressurized to sign the contract and agree to all the same terms. There has to be mutual consent to create a binding agreement. If due to any reason both parties don’t agree to the clauses, there’s no contract.


For a contract to go through, there has to be value exchanged between the parties. This value can be in the form of money or services, but both parties has to give something or else it is a gift, not a contract.


It is required that both parties be rational and fair minded to comprehend the seriousness of the situation and understand about the contract and its clauses. It also requires that neither party be minors, nor be mentally deficient and both parties must be sober, not under the influence of drugs or alcohol when the contract is signed. If either of the party is not competent the contract will be null and void valid.

Contract is for Legal Purpose

A contract is meant for a legal purpose. Any illegal activities, like selling drugs or prostitution is not accepted. Though it is not illegal to enter into a contract that doesn’t have all of these essential items, it only means that if an essential matter is missing the contract cannot be prosecuted by a court.

When is a Written Contract Required                                  

In some cases, verbal contracts can be enforced by law, but some types of contracts must be in writing, e.g. long-term business contracts and contracts for marriage (pre-nuptials). There is also something called as implied contract, where you can unknowingly enter into a contract with someone and be forced to abide by their terms.


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