Contracts are an essential part of one’s daily life. Almost all business transactions are regulated by a contract, which is why it is necessary for one to understand the basic terms used here. A legally binding agreement, a contract is one that is voluntarily entered into by different parties to create a legal undertaking or promise that something will or will not happen. Contracts are typically in the form of a written agreement.

Parties

A contract has at least two parties involved. These are the persons or entities that allow themselves to be legally obligated to another as stipulated in the contract. The parties to the agreement take on themselves the responsibility to do or not to do the matters stipulated in the contract.

Any person can be a party to a contract, with certain exceptions. As covered by law, minors typically cannot enter into legally enforceable contracts, as well as people who are incapacitated due to certain disabilities such as mental infirmity.

Terms

The terms of the contract spell out the responsibilities and commitment of each party, their acceptance of such, and the consideration involved. The contract also usually indicates the consequences, should at least one of the parties fail to deliver on the promise.

Mutual Assent

Mutual assent is reached when an offer is met with an acceptance by the contracting parties. The acceptance must be for the whole offer, without any variations. Any changes made to a section of the offer is not seen as an acceptance but rather as a counteroffer.

Offer and acceptance may not necessarily be done in writing or verbally. There are instances where the terms are not expressed in writing, such as in the case of implied contracts.

Consideration

Consideration is something that is of value given by one party to the other party in exchange for the promise given by the other contracting party. The most common type of consideration is payment of a sum of money. The type and amount of consideration should be expressly indicated in the contract.

Breach of Contract

Also referred to simply as breach, a breach of contract occurs when one party to the agreement fails to deliver on his / her responsibilities as stipulated in the contract. As a consequence, he / she will be assessed damages or be made to pay compensation. There is a statute of limitations for breach of contract and this varies depending on the type of contract, whether written or oral.