Understanding contract basics and contract formation is important because contracts are such an important part of business relationships. In addition, business owners and parties to contracts should be familiar with what to do if a contract has been breached which can have serious consequence for their business.
A contract is essentially an agreement between parties to the contract that sets for rights and responsibilities that the parties have to one another. Contract law provides important legal rights to the parties to a contract that they should be familiar with.
What are the elements of a contract?
- Offer and acceptance – a contract begins with an offer for goods or services and must be accepted in kind. The reason the acceptance should mirror the offer is that there needs to be a meeting of the minds between the parties to the contract for it to be valid. It is important to know that the parties were talking about the same thing when they entered into the contract. Consideration is also an important part of a contract which is a technical legal term it is also important to understand.
- Intention and legality – in addition, the parties must intend to enter into a contract and the subject matter of the contract must be legal.
- No coercion and capacity – the parties to the contract must enter into the contract knowingly and voluntarily and not be coerced for it to be valid. They must also have capacity to enter into a contract which usually requires them to be over the legal age to enter into a contract.
What happens if a contract is breached?
A contract may be breached if one of the parties fails to perform their duties or obligations under the contract. The remedies available for breach of contract can vary and can include monetary damages or injunctive relief, among some others. The breaching party may also be ordered by the court to perform, for instance, or the contract may be rescinded.
In order to protect their contract rights and the interests of the business, it is important for business owners to understand the legal resources available to them in circumstances when there has been an alleged breach of contract. Knowledge of how to draft a contract that protects them, and what to do if that contract has been breached, are beneficial information for business owners to have.