Contracts create rights and obligations between two or more parties. In most cases, a contract will also define how parties will perform those obligations and enforce those rights. Although most business contracts are express contracts, some are also implied contracts.
One essential thing about an express contract is that when an agreement qualifies as a valid contract, any of the parties can enforce it. This makes contractual risk a real issue in business processes, so mitigating contract management risk is vital to doing business.
What is an express contract?
An express contract is an agreement where parties explicitly spell out the contract terms, either orally or in writing. In this type of contract, parties are fully aware of their agreed-upon terms. They also know the terms are binding and that any party can take legal steps to enforce them.
An example of an express contract is a franchise agreement between a franchisor and a franchisee. The franchisor allows the franchisee to do business under its brand in exchange for royalties and/or an initial franchise fee. The agreement explicitly states the franchise terms, and both parties sign the agreement.
Here’s another example of an express contract: suppose you place an ad looking for a dog walker and state the amount you’re willing to pay. Someone calls you to offer their services, you arrange to see them, and they start walking your dog twice weekly for the stated amount.
An implied contract is the opposite of an express contract and is a contract where parties have not expressed the terms of their agreement either verbally or in writing. However, their actions or surrounding circumstances show an understanding that there is an agreement between them.
For example, suppose you walk into a barbershop and sit down for a haircut. Even if you didn’t discuss the price before the haircut, there is an implied agreement that you will pay for it.
The difference between express contracts and implied contracts is that in express contracts, there is an actual verbal or written agreement. There is no such agreement in implied contracts, but you can infer it from the parties’ actions.
So long as the elements of a valid contract are present, courts can enforce both types of contracts. However, it is easier to prove and enforce an express contract, which is why most business contracts are written express contracts.
Elements of an express contract
For an express contract to be valid, it must contain the following essential elements:
This is a promise to do something in exchange for the other party performing an action. An offer is essentially an invitation to enter into a contract.
Every contract begins when someone wants something and looks for another party that can fulfill the desire. An offer is present when they ask another party to meet the need in exchange for value.
When a party has presented an offer, the other party can reject or accept it. Acceptance happens when a party that receives an offer agrees to the terms.
Upon receiving a contract, you can communicate acceptance orally or in writing. Acceptance can also be by conduct. For example, suppose someone offers to sell you an antique car for a specified price, and you send them the money. Your payment for the antique car is your acceptance of their offer.
Parties enter into a contract because of the value they will get out of it. Consideration is the value the parties will exchange to perform the contract. And it doesn’t have to be momentary; it can also be providing goods or services.
For a valid contract to exist, both parties must understand that signing the contract document means they are contracting. They must also sign the contract willingly without duress, misrepresentation, or fraud.
If any party signed the agreement without an awareness of what they were doing, there’s no valid contract.
This boils down to whether the parties are legally qualified to enter the contract in the first place.
Some categories of persons by law cannot enter into a valid contract:
- A minor (individuals under age 18 in most U.S. states) cannot enter into a contract unless it is a contract for necessities. For example, an education contract.
- An individual who is intoxicated at the time of signing the contract.
- An individual with a mental illness that makes them mentally incompetent.
- An individual who lacks sufficient understanding of the language used in the contract.
This last point deals with the laws governing the jurisdiction where the contract will operate. For an express contract to be valid, it must comply with all federal, state, and local laws.
A contract with an illegal subject matter is generally unenforceable. For example, a contract for selling or distributing a prohibited product. Contracts to perform criminal activity are also unenforceable.
Some circumstances may make an express contract unenforceable.
- Unconscionability: When parties’ unequal bargaining power leads to extremely unjust and oppressive term(s) that shock the conscience.
- Public policy: When a contract contravenes public policy or poses a danger to public welfare.
- Mistake: A contract that contains an honest mistake that produces an outcome materially different from what the parties agreed on.
- Force majeure: When circumstances beyond parties’ control make contract performance impossible.
- Duress: Contracts that a party signed because of the use of force or pressure.
What is the legal implication of an express contract?
When all the elements of a valid contract are present, an express contract is enforceable once parties sign it (if it is in writing) or agree on it (if it is verbal). Parties now have obligations towards each other, and any party who fails to fulfill their responsibility is in breach of contract.
What happens when a party is in breach?
An express contract may state the steps an aggrieved party can take to enforce the agreement if a party is in breach. Parties may agree that when there is a minor breach, the party in breach can offer a remedy.
If it is a material breach, check if your contract provides for arbitration or mediation. You can also file a breach of contract lawsuit and seek redress.
Remedies for breach of an express contract
When you file a lawsuit for a breach of contract, the court may award you one or more of these remedies:
- Monetary damages: Compensation for any financial loss you incurred because of the breach.
- Rescission:You can terminate the contract if the breach is material.
- Specific performance: You can ask the court to compel the other party to perform their end of the bargain. For example, if you supplied goods and the other party refused to pay you, the court can order them to do so.
- Injunction:The court can instruct the party in breach to perform an action or to refrain from action.
Test Your Own Contract Process
Manage express contracts seamlessly with contract management software
An express contract allows parties to explicitly state the terms of the contract and express their intention and willingness that the contract will be binding on them. Because of this, express written contracts are the easiest to manage and enforce. If any party breaches an express contract, the other party can file a lawsuit and seek remedies.
You can manage your express contracts more efficiently using contract lifecycle management software.
- What is an express contract?
- Elements of an express contract
- What is the legal implication of an express contract?
- Remedies for breach of an express contract
- Test Your Own Contract Process
- Manage express contracts seamlessly with contract management software
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.