The Anatomy of a Contract

Contracts are the lifeblood of commerce. They form the basis of business dealings and specify the rights and responsibilities of the parties involved.

At its root, a contract is a voluntary agreement that is legally enforceable. But what does a contract need to include to be considered binding?

If you have questions about a business contract or you are involved in a contract dispute, it is important to seek knowledgeable legal counsel promptly. Burg Simpson Law Firm has been serving individuals and businesses for decades in commercial litigation matters.

Call 303-792-5595 today for a FREE and confidential case review. Our lawyers serve clients throughout the Denver area and all of Colorado.

What Elements Are Needed in a Contract?

Signing a contract is a legal means of solidifying an agreement with another party. It might read like a bunch of fine print and traps for the unwary, but contracts can provide much-needed protections and clarity on the duties imposed on an individual or business.

To be considered legally binding, a contract needs to include the following elements:

1. Offer

The Uniform Commercial Code of the United States defines an offer as follows:

“(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

“(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.”

– Uniform Commercial Code § 2-206(1)(a)–(b)

In other words, the offer in a contract is a guarantee to do something in exchange for the other party’s promise or action.

2. Consideration

Consideration is the product, service, monetary payment, etc. offered in exchange for the other party’s agreement.

3. Capacity

All parties must have the legal capacity to enter into a contract. Broadly speaking, capacity refers to the ability to make rational decisions concerning a legal issue. Additional considerations may include an individual’s age, mental status, etc. 

4. Legality

The terms of a contract must abide by all applicable laws.

5. Acceptance

When you sign a contract, you are agreeing to the specified terms. Mutual assent—i.e., acceptance of the terms of the contract by both parties—is required for the contract to be binding.

How Are Contracts Structured?

Contracts follow a fairly standard format. The structure of the document typically consists of the following:

Title

The title of the contract should briefly summarize the nature of the agreement (e.g., sale agreement, lease agreement, etc.).

Parties

The parties to the contract need to be specifically identified. Parties may consist of one or more individuals, businesses, etc.

Preamble and Recitals

In addition to the parties entering a contract, the preamble provides background information such as the date of the agreement and where the parties are located. Additional information may be included in one or more subsequent sections known as recitals.

Body

The body of the contract consists of multiple sections that lay out the terms of the agreement in full. Often considered “boilerplate,” close attention must be paid to each of the sections in the contract’s body. These may include:

• Definitions
• Conditions and general provisions; these include the terms of the contract and specify the rights and obligations of the parties
• Scope—should specify in detail the nature of the work, due dates or completion dates, etc.
• Representations and warranties; a representation is a statement of fact made by the party drafting the contract, while a warranty is a promise to compensate the other party if the representation turns out not to be true (known as indemnity)
• Covenants—a promise to perform a particular action

Depending on the nature of the contract, additional sections may include provisions concerning confidentiality, disclaimers and notices, etc. Another common feature of contracts is an agreement concerning how disputes are to be handled (e.g., arbitration, the forum and venue for litigation, etc.).

Signatures

Contracts must be signed by all parties to be enforceable. Adding your signature means that you agree to and are bound by the terms of the contract, so read it carefully and consider consulting an attorney before signing.

Exhibits and Schedules

The contract may reference one or more addenda that expand on certain points or considerations. Schedules and exhibits—also called attachments, annexes, or appendices—should be reviewed carefully to ensure that the information is accurate and aligns with the terms of the contract.

What If Something Gets Left Out?

What is not included in a contract can be just as important as what is. The slightest omission can leave you or your company vulnerable to litigation.

Whether you are drafting the contract or reviewing a contract prepared by another party, it is generally in your best interest to confer with legal counsel to understand what effect any missing provisions may have. Negotiation and revision of the contract may be necessary to address potential discrepancies and other issues.

Types of Contracts

Contracts serve many different purposes. They all need to have the required elements, but beyond that they can vary widely. Some of the most common types of business contracts include:

• Sales agreements (also known as a bill of sale)
• Purchase orders and agreements
• Employment agreements
• Independent contractor agreements
• Partnership agreements
• Licensing agreements
• Property and equipment leases
• Non-disclosure agreements
• Indemnity agreements (a contract where one party agrees to “hold harmless” another party)
• Vendor service agreements
• Advertising agreements
• Franchise agreements

This is not a comprehensive list. Contracts can serve a variety of different purposes for individuals and businesses. They may be long, short, or somewhere in between.

Regardless of the nature of the contract, what does not change is the importance of understanding what you are signing. This can be accomplished on your own, with the assistance of in-house counsel, or by seeking the assistance of a business lawyer.

Contract Dispute? Burg Simpson Can Help

Any number of disputes may arise after entering into a contract. If you or your business is stuck in an unfavorable contract or you think someone has breached a contract you have with them, the attorneys at Burg Simpson Law Firm can help you protect your rights and assert your interests.

Our commercial litigation lawyers are well-versed in contract law. After thoroughly reviewing the contract, we can develop a strategy for resolving the dispute in your favor. This may require negotiation, litigation, and—potentially—going to trial. Our team will handle all aspects of the claim on your behalf.

For a FREE and confidential case review, contact Burg Simpson today. Our commercial litigation attorneys handle contract disputes and other business matters on behalf of individuals and companies in Denver and all of Colorado.