Regulations and Requirements - Business Law: Contracts
Leimberg, Satinsky, Doyle, Jackson, Tools & Techniques of Financial Planning, 7th Edition, Chapter 24
Downes, Goodman, Dictionary of Finance and Investment Terms, 5th Edition
An agreement among two or more parties by which rights or acts are exchanged for lawful consideration. Includes a promise or promises by one or both parties to perform or refrain from performing an act or acts.
Elements of a contract
- Agreement - Must be mutual assent by the parties with an offer by one party and acceptance by another. The mutual assent may be in writing or oral.
- Consideration - Something of value one party gives to another in exchange for a promise or act. Consideration can be in the form of money, commodities or personal services.
- Contractual capacity - The parties must be able to enter into a legally binding agreement. Minors, intoxicated individuals and mentally incompetent individuals are among those deemed to lack capacity to enter into a legally binding contract.
- Legality - An agreement to perform an illegal act or contrary to public policy is not an enforceable contract.
- Legal form - The contract must be in a form required by law or acceptable by law. Contracts are not always required to be in writing, but all contracts involving real estate must be in writing.
Types of contracts
- Express - Parties state the terms of the agreement to which they will be found, usually in writing.
- Implied - Terms of agreement can be reasonably inferred by acts of the parties, even if not expressed in writing or orally.
- Bilateral - All parties exchange promises to perform.
- Unilateral - One party makes a promise in anticipation of some act. There is no reciprocal promise.
- Executed - All parties have completed their promises.
- Executory - Contract only partially performed or totally unperformed by the parties.
- Valid and enforceable - All elements of legal and binding contract present.
- Void - Contract without legal force or effect.
- Voidable - Contact that can be annulled by either party after signing because it is legally defective or allows one party to rescind the contract.
- Unenforceable - A contract that cannot be verified for legal enforcement or fails to meet certain requirements.