types of contracts in business law

Types of Contracts in Business Law

Common types of contracts in business law for any business

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.

 

What are Business Contracts?

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.

 

Understanding the Different Types of Contracts in Business Law

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:

  • Their validity.
  • Their nature of consideration.
  • How they are formed.
  • The nature of their consideration.

 

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.

 

Benefits of Written Contracts

Written contracts can:

  • Set out ways of resolving disputes over services or payments.
  • Set out ways of verifying contractual agreements.
  • Act as proof of what was agreed upon by the contracting parties.
  • Specify ways of ending the contract before the performance by either party is completed.

 

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.

 

Business Law Contracts According to their Classification

Contracts Based on Execution

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.

 

Contracts Based on Formation

Formation based contracts are categorized into three groups. They are:

  • Express Contracts- They result from conversations or expressions.
  • Implied Contracts- They occur without conversations or expressions. They can be implied in law or fact. True implied contracts arise from mutual agreements that haven’t been expressed in words.
  • Quasi Contracts- Also known as implied-in-law contracts, these types of business contracts exist regardless of consent by either party.

 

Contracts Based on Validity

There are four different types of business contracts based on validity. They are:

  • Void Contracts- They don’t impose any obligations on the contracting parties, and they are unenforceable.
  • Valid Contracts- They are legally enforceable.
  • Voidable Contracts- These are the types of business contracts established under mental or physical pressure. They might become void or valid business contracts at a future date.
  • Illegal Contracts- These types of contracts have unlawful objects. For instance, a contract may be considered illegal if it involves the sale and delivery of illegal narcotics.

 

Nature of Consideration Based Contracts

These types of contracts are classified into two categories: unilateral and bilateral contracts.

 

Bilateral Contract

Also known as two-sided contracts, bilateral contract involves contracting parties who promise not to perform or perform certain acts.

 

Unilateral Contracts

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.

 

Other Types of Contracts in Business Law

Options Contracts

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.

 

Adhesion Contracts

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.

 

Aleatory Contracts

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.

 

Lump-Sum or Fixed Price Contracts

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.

 

Find a top contract lawyer for your business

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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