Business Basics: Contracts

adelarcarrillo
Mar 13
3 min read

Business is built on contracts. As we know, the working world depends on relationships and trust, the very things that contracts ensure. A promise is great but what is even better is a promise that can be enforced in court. I want to outline what a contract is and some of the vocabulary you should know when learning about them.

Contracts: An agreement that is legal in content and process between two or more competent persons supported by exchange of consideration

Legal in content and process: the goal of the agreement has to be legal or it will be considered null and void.

Competent Person: Adult, over 18 with mental competence. You do not need to be a citizen or have any specific residence. Persons with mental incompetence can be under the guardianship of someone else. You can have permanent incompetence or temporary; being inebriated (to a specific point) can be considered incompetence. As artificial persons, corporations can enter into their own contracts.

Consideration: is the exchange of value, someone is giving up something for something else

Offers and Acceptance: There must be an offer, and acceptance to enter into an agreement. Someone may ask for an offer, like listing a house, then someone makes an offer, and the offer can either be accepted or declined. An offer is considered dead when the offeror passes away or is considered incompetent, the offer is rejected through a counteroffer, or the offer is revoked by the offeror before acceptance.

Torts: Torts are private wrongs as opposed to a civil offense. Torts are prosecuted (or not) by the victim of the harm for the benefit of the victim. A court can order specific performance or for someone to pay the damages when a contract is not fulfilled.

Unilateral contact: only obliges one side to perform something.

Bilateral contract: obliges both sides to perform something.

An executory contract: is being performed, but something is still not completed.

An executed contract: has been fully performed by all sides.

Severance clause: "If any part of this contract is declared invalid for any reason, this ruling shall not affect the validity of the rest of the agreement. The other parts of the agreement shall remain in effect as if the agreement had been executed without the invalid part. The parties declare that they intend and desire that the remaining parts of the agreement continue to be effective without any part or parts that have been declared invalid"

Arbitration clause: Arbitration is a dispute resolution process where, instead of suing and going to court, the parties agree to work out the dispute with a 3rd party, a licensed arbitrator. An arbitration clause can be put into a contract to prevent any issue from going to court.

Failure to read any portion of a written agreement is not a failure to agree. Signature is presumed to prove acknowledgement of the whole agreement.

Fraud, Undue Influence or Duress: means that there was not a genuine acceptance, therefore there was no agreement, the contract is considered null and void.

Contracts do not legally have to be in writing unless:

Performance will take more than a year

Someone is agreeing to pay the debt of another person

Lease real estate for more than one year

Employ an agent or broker to sell or buy real estate

Buy or mortgage real estate

Statute of limitations without lawsuit (2 years for oral contract, 4 years for written contract, measured from breach)

It is important to research the offer and agreement thoroughly before signing or agreeing to anything.

Some resources that I use to do research are:

Investopedia: https://www.investopedia.com/

California Secretary of State: https://www.sos.ca.gov/

Harvard Law School Library: https://guides.library.harvard.edu/law/free