When it comes to the commercial relationships of the modern world, there are always several challenges that companies and consumers face regarding what they can and what they cannot do.

From the consumers’ perspective, they want the best product for the fairest price and they expect it to work as intended.

From the companies’ perspective, they want the clients to pay for their products and to protect their IP and waste as little money as possible in repairs or product replacement.

These solutions are often included in the contract signed by both parties, to ensure that everyone involved knows their responsibilities and their rights.

Juridically speaking, a contract refers to a “legally binding agreement between parties in which they are obligated to do or restrain from doing particular things.” For instance, the consumer is prohibited from opening physical products to make repairs or other intents. Doing so will automatically void the warranty issued by the manufacturer. The manufacturer, on the other hand, must ensure that the product will work as intended by a period of time of at least a certain amount of time, depending on the legislation where the contract takes place.

Contracts of all kinds can be done formally and informally, orally or verbally, depending on the level of formality that the service/product requires. When you hire a mason to build your garage, normally you do not sign a written contract, but set up the clauses (the rules that apply) verbally, like this. “I want you to build the garage in five days and I will pay $$$ for that.”, and it is done. The same rules for extinguishing the contract apply as if it was written.

The most formal, written contracts usually have several dozens of clauses that must be read, understood and followed by all parties involved on its celebration.

The essential components to a valid legal contract are:

  • The identification of all the involved on its celebration;
  • The identification of the nature and extent of the product or service that the contract refers to;
  • The clauses that must be followed by said celebrants and that imply legal refund;
  • The clauses that nullify, extinguish or end the contract;
  • The legal implications that those who do not follow the rules are subject to.

The celebration of the contract is an act of free will and no contract will hold legal value if any of the parties was coerced to sign it. The contract is also voided of legal value if the signature is not legally considered capable. Incapable people are all those who:

  1. a) Are under the age of 18. This age may vary depending on the country that the contract takes place.
  2. b) A person who is afflicted with any mental illness, like Schizophrenia, Parkinson, Alzheimer or others of the sort
  3. c) Illiterate people;
  4. d) A person who is intoxicated or under the effects of any drugs, licit or not, during the celebration of the contract.

Regarding the officialization of the contract, it must have the signature of all those formally mentioned in it, that is, those who the contract specifically indicates as participating in the contract, established in the first section of it. The contract may also require the signature of witnesses, depending on the formality required for the act. Bank loans and other forms of commercial contract almost always make use of witnesses to increase the validity of the document.

The contract also must have several copies, at least one for each of the involved parties to be considered legal and all of them must be signed by all parties on all pages of each one to formalize that they read, understood and agreed to each clause contained on them.

The ways out

One of the kinds of clauses that can make the contract to be extinguished is the Arbitration. Note that it differs from ended.

A contract is declared ended when one of its clauses automatically applies. For instance, in the given example of the garage, the informal oral contract will automatically end when the sixth day is reached, causing both parties to be freed from the legal bonds.

The legal terminology for this clause is “Termination”.

The extinction of a contract, on the other hand, is one or more clauses of the contract are violated, by one or more parties. When this happens, the clauses that stipulate the penalties are applied automatically. In case of one of more parties disagreeing of a clause AFTER it is signed by them, like when it is mandatory from you that you sign a contract against your will or one of its clauses is later considered to be abusive, a legal dispute is involved. One of such cases if when you only have access to one Internet Service Provider and you must have access to the internet to operate your business.

Another way to end a contract, but on a more peaceful way is through a clause called Arbitration.