Contract Basics

Many pieces of our daily personal and business lives are touched in some way by a contract. We have: cell phone contracts, rental agreements, car loans, employment contracts, sales contracts, real estate sales or purchase contracts, and on and on. Almost everything that we do has a contract behind it somewhere or somehow. And rightly so. Ideally, when an agreement is clear, then both parties understand what they can expect. Contracts do not necessarily have to be in writing to be valid. And they do not even have to be written to be enforceable, despite that common misconception. An oral contract can certainly be enforced, but it is almost always more cumbersome to do so. And, since memories falter, the written word is always better.

Bargained for Exchange

The basis of any contract is that it is an agreement for a fair exchange, a bargain. Each of the parties gives up something to receive something else. Most consumer contracts are consumers trading money for goods or services. The three main parts to any contract are: offer, acceptance, and consideration. If any of those is missing, the contract is not valid. In simplest terms, the offer and acceptance is the agreement. The consideration part of the contract may be the actual or representative part of the trade. The consideration is more likely to be a concrete action, than the agreement parts of the contract. Offer, acceptance, consideration. I place an ad to sell my car. Someone calls me on the phone and says that's exactly the vehicle he's been looking for and wants to buy it. Is that a contract? No. There is no consideration – therefore no contract. Consideration is often the point in the bargain where money changes hands. Besides the three basic parts of a contract, there are other basics that will help anyone better understand any contract.

Here are a few points to remember:

• Strict compliance of a contract is expected more from the party who wrote the contract than the party who only agreed to the contract.
  
•  Written contracts can only be changed by a written change.
  
• Entire agreement – Most contracts have a statement such as: this contract is the entire agreement between the parties. The effect of that statement is that regardless of the salesman's promises over and above the written promises on the contract – those spoken promises are most likely unenforceable.
  
• Savings clause – Most contracts also state that even if part of the contract is unenforceable, the rest of the contract remains in effect.
  
• Each contract is different – there are no standard contracts. Read every contract that affects you carefully. If you don't understand some of the language, ask what it means. If you still don't understand what it means, don't sign. Ask if you can take the contract away and have someone more knowledgeable look it over before you sign. If the other party won't allow you to do that, don't sign.