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Facts
Contracts vary depending on the agreement's function or purpose. Employment contracts establish agreements between employers and employees. Sales contracts establish agreements between buyers and sellers. Other examples include lease agreements, warranties and real estate contracts. While contracts create obligations enforced by the law, gifts serve as social promises that are generally unenforceable. So, unlike when you enter an agreement to buy your friend's used car for $900, your best friend cannot legally make you buy her a birthday gift.
Types
You can form written, verbal or implied contracts. A written contract summarizes an agreement using written words. A verbal contract creates a legally binding agreement orally without using written words. An implied contract refers to an agreement that is neither written nor verbal. Implied agreements include "quasi" or "implied in law" contracts that the law imposes to avoid an unfair benefit. An example is when a painter mistakenly paints the wrong house. Let's imagine that the homeowner at 123 Peach Street contracted the painter, yet the painted completed the house on 23 Peach Street. If the homeowner at 23 Peach Street saw the painter and intentionally failed to correct his mistake, then the court would compel the homeowner at 23 Peach Street to pay the painter. Otherwise, the homeowner would be unfairly enriched. "Implied in fact" contracts are real contracts, neither written nor verbal, and established based on the parties' actions. For instance, when you drop off your clothes at a dry cleaner's, you may not explicitly discuss how you want your clothes cleaned. You probably get a ticket that identifies your items and pay once you retrieve your clothes. Although you did not sign a formal contract, your actions establish an "implied in fact" contract. Thus, you cannot refuse to pay just because you did not sign a contract.
Misconceptions
Although you may enter a contract and think that every party understands the agreement, differences in contract interpretation are common and can lead to lawsuits if the disputes remain unresolved. Let's say your son needs a new backpack. You offer a seller $40 for a backpack covered with comic strip characters, but you inspect the item after you get home. While the backpack is filled with popular comic characters, you soon realize that there is a problem since it only has room for an infant's diapers and not your 5th grader's heavy books. What went wrong? The transaction involved a backpack with comic strip designs. You and the seller bargained for an item though while you thought $40 equated to a large backpack, the seller had a different size in mind.
Significance
To avoid contract disputes, you should form "clear, definite, and explicit" agreements. Keep in mind that what you consider to be "clear, definite, and explicit" may completely differ from what the other party believes. Before signing a written contract, you should read the contract and clarify vague areas. Ask questions so that you understand any disclaimers, such as when a seller excludes or modifies a warranty. Be wary of standard or "boilerplate" contracts, which tend to include provisions that favor the contract drafter.
The Statute of Frauds
The statute of frauds refers to certain agreements that will not be legally enforced unless the contract is in writing. In other words, oral agreements are invalid. Although each state maintains its own version, the Uniform Commercial Code section 2-201 highlights topics covered under the statute of frauds. Generally the statute of frauds includes sales of goods more than $500, land sales, payments of another person's debts as well as agreements that take longer than one year to complete.
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