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Category: Contracts

A function of contract is the legal recording of transactions between individuals or business entities. It usually exists because the two parties are each gaining a value and want to formalize the terms of their agreement.

Contracts provide a written document that outlines the full understanding of the business relationship and scope of the work so that no one can claim any misunderstandings later down the road. They specify exactly what rights are being purchased and what rights you’re retaining. They’re binding and legally enforceable. In business, contracts are important because they outline expectations for both parties, protect both parties if those expectations aren’t met and lock in the price that will be paid for services minimizing risk.

Seven essential elements must be present before a contract is binding: the offer, acceptance, mutual assent (also known as “meeting of the minds”), consideration, capacity, and legality. Contracts are typically in writing and signed to prove all of those elements are present.

A written contract ensures that all of the terms of an agreement are documented. If a disagreement arises, there will be a document that the parties can refer back to in order to get the relationship back to where both parties mutually assent or have a meeting of the minds.

The basic purpose of contract law is to provide a framework within which individuals can freely contract. The contract can legally bind the contracting parties by the creation of laws which are applicable only to the very individuals that create the contract and its subsequent legally binding laws.

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