How to Understand Contracts Part 1

If you are running your own business, a contract is at the heart of all the work you do, which is why for some companies your employment status is characterized as “independent contractor.”

To write or sign a a contract you first have to understand what it is. A contract is an agreement that is enforceable in a court of law or equity.

Every contract has at least two parties, the offeror who make the offer at the heart of a contract and the offeree who accepts it.

There are four basic steps to any contract

Difficulty: Easy

Instructions

1. 

   There must be agreement.
   An offer and acceptance of the offer, mutual assent by both parties No contract is made until the offer is accepted.

2. There must be consideration.
   Consideration is something of value exchanged for fulfillment of the agreement. It can be monetary compensation, or something with indefinite value like film credit but it must be a valid consideration. The offer of a gift that is later withdrawn is not thought of as consideration because there is no prior agreement.

3. The offerror and offeree must have capacity.
   People who enter into a contract must have the capacity to do so. Insane people do not have capacity, which is why wills, a form of contract, typically include the phrase, "being of sound mind."

4. A contract must be lawful.
   Illegal agreements are not enforceable, such as a contract to sell drugs or kill somebody’s spouse.
   
   If all four points are met, then the parties involved are bound by its terms.