A commercial contract refers to a legally binding agreement between parties in which they are obligated to do or not do certain things. Contracts may be written or verbal and drawn up in a formal or informal way. Most businesses create contracts in writing to make the terms of agreement clear, often seeking legal counsel when drawing important contracts. Contracts may encompass all aspects of a business, including hiring, wages, employee safety, leases and loans.
A breach of contract occurs when one of the parties fails to live up to the agreements. In such a case, the law is required to provide a remedy, which in many cases involves the court system enforcing the contract or asking the party to compensate for any damage done by the breach.
Contract laws are usually enforced in the state where the agreement was signed and may come under either common law or the Uniform Commercial Code. Under common law, most contracts are controlled by a particular state’s common law (i.e., laws from court rulings that become part of the local system). The Uniform Commercial Code applies for the sale of goods, which common law does not cover.
Last updated: Sept. 30, 2008