A business contract is a legally binding agreement between two or more persons or entities. Show
Contracts can be complex. It is important that you fully understand the terms of a contract before signing anything. You are advised to seek legal and professional advice first. Understanding business contractsDealing with contracts is part of running a small business. You will have a number of business relationships involving some type of contractual commitment or obligation. You may:
Tip You should be aware that the majority of contracts entered into will have goods and services tax (GST) implications. Verbal and written contractsContracts can be verbal (spoken), written or a combination of both. Some types of contract such as those for buying or selling real estate or finance agreements must be in writing. Written contracts may consist of a standard form agreement or a letter confirming the agreement. Verbal agreements rely on the good faith of all parties and can be difficult to prove. It is advisable (where possible) to make sure your business arrangements are in writing, to avoid problems when trying to prove a contract existed. Regardless of whether the contract is verbal or written, it must contain four essential elements to be legally binding. Essential elements of a contractFor a contract to be legally binding it must contain four essential elements:
However it may still be considered invalid if it:
General terms and structure of an agreementThere is no specific format that a contract must follow. Generally it will include some terms, either expressed or implied, that will form the basis of the agreement. These terms may outline contract conditions or contract warranties. Contract conditions are fundamental to the agreement. If the contract conditions are not met it is possible to terminate the contract and seek compensation or damages. Contract warranties are less important terms and not fundamental to the agreement. You cannot terminate a contract if the warranties are not fulfilled, however, you may be able to seek compensation for any losses incurred. When negotiating the contract terms make sure the conditions of the contract are clearly defined and agreed to by all parties. Contracts may follow a structure that can include, but are not limited to, the following items:
Tip In almost all cases of creative work (such as a logo you pay to have designed) copyright will remain with the creator, regardless of whether they created it on your behalf. If you engage a contractor to produce material that attracts copyright protection make sure the contract includes assignment of these protections, so that you own all the rights to the materials you paid to have created. Standard form contracts and unfair termsA standard form contract is a pre-prepared contract where most of the terms are set in advance with little or no negotiation between the parties. These contracts are usually printed with only a few blank spaces for adding names, signatures, dates etc. Examples of standard form contracts can include:
Standard form contracts are generally written to benefit the interests of the person offering the contract. It is possible to negotiate the terms of a standard form contract. However in some cases your only option may be to ‘take it or leave it’. You should read the entire contract, including the fine print, before signing. If you intend to offer standard form contracts you must not include terms that are considered unfair. This could include terms that:
There are laws protecting consumers from unfair contract terms in circumstances where they had little or no opportunity to negotiate with businesses (such as standard form contracts). Unfair contract terms and small businessesA law protecting small businesses from unfair contract terms in standard form contracts applies to contracts entered into or renewed on or after 12 November 2016, where:
For more information on unfair contract terms visit the ACCC website. Before signing a contractBefore you sign a contract:
Once you’ve signed a contract you may not be able to get out of it without compensating the other party for their genuine loss and expenses. Compensation to the other party could include additional court costs if the other party takes their claim against you to court. Some contracts may allow you to terminate early, with or without having to pay compensation to the other party. You should seek legal advice if you want to include an opting-out clause. Tip If it is not possible to have a written contract make sure you have other documentation such as emails, quotes, or notes about your discussions to help you identify what was agreed. Ending a contractMost contracts end once the work is complete and payment has been made. Contracts can also end:
If a contract warranty or minor term has been breached it is unlikely that it can be terminated, though the other party may seek compensation or damages. Some contracts may specify what will be payable if there is a breach. This is often called liquidated damages. If there is a dispute regarding the contract it is important both parties communicate clearly to attempt to resolve the matter. You may consider using our low-cost dispute resolution service or seek legal advice to help resolve your dispute. Which of the following is necessary to form a contract?A contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.
Which type of contract is not required to be made in writing?However, any contract with an indefinite duration does not need to be in writing. Regardless of how long it takes to perform the duties of the contract, if it has an indefinite duration, it does not fall under the Statue of Frauds.
What three parts of a contract are necessary for it to be legally binding quizlet?THREE ELEMENTS. OFFER. ACCEPTANCE. ... . OFFER. CONDITIONAL PROMISE TO DO OR REFRAIN FROM DOING SOMETHING.. ACCEPTANCE. ACT OF AGREEING TO AN OFFER BY WORDS OR CONDUCT. MUST BE COMMUNICATED TO THE PERSON MAKING OFFER.. CONSIDERATION. THE EXCHANGE OF VALUE OR BENEFIT THAT EACH PARTY AGREES TO GIVE UP AS A RESULT OF AN AGREEMENT.. What are the four requirements of a valid contract quizlet?what are the 4 requirements of a valid contract? mutual assent, consideration, capacity, legality.. mutual assent. offer and acceptance.. consideration. both parties are giving and getting something of value.. capacity. all parties must be capable of understanding the terms and legally.. legality.. |