Contracts are legally, binding agreements between two or more parties which establish a set of promises, which if breached, allows for a legal remedy. Contracts pervade almost every aspect of our lives. For example, contracts are common between consumers and banks, insurance companies, utility companies, landlords, mortgage companies, and vendors.
Parties - The contract must identify the parties who are making the contract. Generally, anyone can enter into a contract, excluding minors, the mentally incompetent or certain felons.
Consent - A valid contract must be made with mutual and free consent from all parties. This means a contract can be invalidated if any party agreed to the contract under duress, through fraud, through menace, or by mistake. For example, you are forced to sign a contract while someone holds a gun to your head this contract is not legally enforceable.
Consideration - A contract must have consideration to be valid, which means each party must provide or promise something valuable or needed by the other party. If there is no consideration, there is no contract. For example, if a pool company agrees to build you a pool but you have not promised or paid anything in return, you cannot sue the builder for failing to build the pool because they did not receive any consideration.
Offer and acceptance - A valid contract must also have an offer and acceptance. For example, under a renter's contract, the landlord offers an apartment and the renter accepts it.
Legal Purpose - The contract must have a legal purpose which does not violate the law. This means the subject or object of the contract must be possible, definite, and lawful. For example, if you have a contract to produce drugs for a drug dealer, because this is an illegal act and the contract is not legally enforceable; the drug dealer will not be able to seek legal redress in court.
Contract Breach - Breach of contract occurs when one party fails to perform some action in accordance with the terms of a written, oral, or implied contract. If a breach of contract occurs under current law the offended party may wish to recover damages or monies lost due to the breach.
Disclaimer - A disclaimer is a written portion of a contract that acts as a defense mechanism against any unwanted actions or occurrences. In the dictionary, it is defined as a denial, rejection, or refusion of a power or right, or of an outlined responsibility. Many businesses protect themselves and their property with disclaimers, as to not fall into a situation where they lose out, are taken advantage of, are falsely accused, or experience other unfavorable outcomes.
Forward Contract - A forward contract is a contract between two parties that outlines the sale or purchase of something at a set price on a date in the future. It is normally arranged by a cash or delivery basis agreed upon by both parties. The time and the price of the item is fixed at the time the exact contract is executed. Sometimes, forward contracts can be confused with futures contracts. Though they have many similarities, forward contracts do not trade on an exchange. They also settle at the end of the contract term. Those who use forward contracts are mainly people who want to hedge the volatility inherent in the asset itself. Large companies use forward contracts to hedge currencies and interest rates, as forward contracts are highly customizable.