We engage in business transactions every day. Most of our business deals involve the use of contracts. Contracts obligate involved parties to fulfill their contractual duties by spelling out legal consequences in case the contract is breached.
What most contracting parties don’t know is that there are different business contracts, and each contract best suits a specific type of business deal. Not all contracts guarantee to safeguard your business. Contracts come in different forms to suit different purposes and situations. They are categorized according to how they’ll be executed, their validity, the considerations they offer, and how they are formed.
Business contracts are agreements between two or more parties who create legally binding obligations to refrain from performing or to perform specific tasks. They can relate to transactions involving a transfer of ownership or transactions dealing with sales and services. Anyone may enter into a contract, including government agencies, individuals, and business organizations.
Different types of contracts in business law serve the purpose of creating legal relationships between parties entering into agreements. They specify the rights and obligations of each party according to their agreement. Contracting parties are obligated by the law to do their part, as stated in their contract, as long as the contract did not result from duress or undue influence.
Contracts can be anything from simple handshake deals to perform certain tasks to formal written documents. They can be written or oral agreements that can or cannot be witnessed, signed or sealed. Traditionally, contracts were considered as legally enforceable if they were only sealed. Today, the courts recognize different types of contracts in business law, such as implied contracts; the use of sealed contracts in business deals has diminished.
Modern-day contracts can be classified according to:
Written contracts provide contracting parties with more certainty compared to verbal/oral contracts. They are safer because they set out details of the parties’ agreements meaning that they minimize business risks from the time they are entered into.
Written contracts can:
Contracts give the involved parties peace of mind because they know what they are supposed to do, how long they are supposed to perform their end of the agreement, and how much they will be paid.
In this category, contracts can either be executory or executed contracts. Executed contracts are the ones where performance is already executed. In this contract, one of the parties in the business contract has already fulfilled his or her obligations. On the other hand, executory contracts are the ones where the parties involved are required to perform their future obligations.
Formation based contracts are categorized into three groups. They are:
There are four different types of business contracts based on validity. They are:
These types of contracts are classified into two categories: unilateral and bilateral contracts.
Also known as two-sided contracts, bilateral contract involves contracting parties who promise not to perform or perform certain acts.
Also known as one-sided contracts, these types of business contracts are established with the acceptance of an offer. An example is where one offers a reward if someone finds their lost possession. The person offered the reward doesn’t have to find the lost item belonging to the one offering the reward.
Options contracts allow a contracting party to enter to a different contract with a different party at a time that is not specified. An example of an option contract is where a seller is paid by a buyer to take their property off the market, after which a new contract to buy the property is made if the buyer chooses to purchase the property.
Commonly known as “take it or leave it” contracts, adhesion contracts are drafted by parties with more bargaining powers. Weaker parties have no say. They may only choose to accept or reject the contract. These contracts leave one of the parties in a position where they have little or no negotiation powers.
These contracts involve agreements that aren’t triggered until certain events occur. A good example is an insurance policy. Insurance policies require a buyer paying premiums and the buyer promising to pay the insured good, say a car, in case it is involved in an accident. As you can see, the insured or the buyer pays for a service that he or she will never receive, and the insurers or sellers have to pay possibly more than the amount of premiums they received from the insured.
In these types of contracts, the sellers and the buyers agree on fixed prices to be paid for projects. These contracts put the sellers at significant risks since if the projects become more expensive than projected or if they take longer to complete, the sellers will still be paid the amount that was initially agreed upon.
BestLegalChoice vets top contract attorneys who deal with different types of contracts in business law. If you require the help of a diligent contract law attorney to safeguard and look out for your business’s interests, you can post your legal request here. We only accept a small percentage of lawyers who apply to our platform that must pass our due diligence process, or call (800) 390-3293, and we will be glad to assist you with any of your contract and business legal needs.
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