Understanding Agreements: What is a Contract?
A contract is an agreement between parties that states how they will work together. These agreements enable people and businesses to collaborate and fulfil specific desires and needs. They are official agreements that are enforceable by law.
It’s a paper of mediation, either physical or digital, between two or more parties that mentions terms and conditions related to execution of the service.
Key Elements of a Contract
Legally optimised contracts usually have various crucial elements. Those components are:
1. Offer: One party promises to another that they will or will not execute specific actions in the future.
2. Acceptance: It is an expression, through words or deeds, that showcases both parties agreeing to the terms of that specific contract.
3. Awareness: Evidence both parties clearly understand and acknowledge “the basic substance of the contract.”
4. Consideration: This segment entails value promised in exchange for the actions (or nonactions) clearly defined in the offer. The most general instance of this is paying money for goods delivered.
5. Capacity: Both parties must have the ability to understand after knowing what a contract is.
6. Legality: All contracts must adhere to existing laws under which they operate.
Use Cases of Legal Contracts
People mostly draft contracts at the time of
- taking lease or mortgage
- Getting a credit card
- Getting Employed
- Signing up for a service
- Purchasing products online
- Getting insurance
Most Common Types of Business Contracts
There are two types of contracts:
- Unilateral Contract: Agreement gets made when exchanging a specific performance.
- Bilateral Contract: Agreement between two or more parties where they exchange promises to execute and conform to one side of a bargain.
However, there are many other types of agreements made between parties, such as express contracts, implied contracts, and executory contracts. Understanding the different types of contracts is crucial in specific situations. The three most common types of business contracts are:
- Sales Agreements: They mention sales transactions and consumer engagement.
- Nondisclosure Agreements (NDAs): This agreement helps protect the organisation’s vital assets, reputation and (most crucial) business data.
- Service And Vendor Agreements: These help manage business relationships with other third-party vendors, consultants and contractors.
Essential Things to Know About Contracts
Several essential aspects of contracts that are worth knowing:
- Contract Termination
Agreements can be terminated in the several ways including mutual agreement. Understanding clauses and procedures is vital before termination.
- Contract Amendments
Parties can modify agreements after securing consent from both parties. However understand how to a make changes properly to the contract.
- Dispute Resolution
Legal agreements often come with clauses to resolve disputes. Being aware of how disputes get resolved helps resolve the issue when it arises.
- Assignment and Novation
Some contracts include provisions regarding rights and obligations. This is important to know at the time of mergers, acquisitions, or business transfers.
- Boilerplate Clauses
Agreements often consist of boilerplate or standard clauses, such as choice of law, force majeure, etc. Be aware of these clauses as they make a significant impact on the contract’s interpretation and enforcement.
- Statute of Limitations
Each authority has a statute of limitations that creates a time limit within which a party can file a claim for contract breaching. Hence, parties must be aware of these time limits.
- Electronic Contracts
In todays digital age Electronic agreements with e-signatures have become Extensive. Understanding all the legal aspects of e-contracts is essential to prevent further issues.
- International Contracts
Parties from different countries produce international contacts that adhere to international laws and treaties. Understanding the law and potential issues is essential in such cases.
Effective Contract Management With The Help of CLM
Contracts may appear fairly straightforward. However, the creation process, review, and management can be overwhelming and time-consuming.
Therefore, contract lifecycle management (CLM) software is here to help organisations manage contracts seamlessly, from creation to execution. A Gartner contract management magic quadrant report endorses the CLM software based on different criteria that help enterprises choose the best tool to effectively manage each contract, from sales and in-house legal to finance and procurement.
Conclusion
A contract is an important task for organisations of all shapes and sizes. Having a CLM platform helps manage the whole process seamlessly. Hence, use CLM software and increase productivity and engage with clients and colleagues effectively.
