Contracts in Business

Contracts are legal documents that must be sufficiently clear and detailed to be enforced. Specifically, for a contract to be enforceable, it must be clear that a meeting of the minds occurred between the parties, consideration was exchanged, the contract was not for something illegal, and that all the parties had the legal capacity to execute the contract. Even if a contract is enforceable, for it to have any teeth, at least one party has to go to court or arbitration to attempt to enforce the contract. Even if one party wins, they still have to engage in a legal process to enforce their judgment and try to obtain the ordered remedy.
The above demonstrates that contracts have a cost in terms of payments, likely to a lawyer, to generate, review, and enforce contracts. Contracts also sometimes have other non-legal costs, including increasing the friction of transactions, creating a less than friendly relationship between parties, and by reducing the parties’ ability to react to changing business variables quickly.
Question: This week’s discussion question asks you to discuss why, despite the costs, businesses continue to rely on contracts? In your initial post, be sure to identify and discuss at least three aspects of contracts that you feel provide companies with sufficient benefits to justify the costs.

Note: to help frame this issue, think about contracts in your daily life. For most people, the vast majority of your daily transactions are not explicitly contractual. Things like getting gas in your car, buying groceries or coffee, or shopping at a store are not contract-based interactions. However, if your vehicle is financed or leased, your kids go to daycare, you have a post-paid cell phone plan, or you have a mortgage, your use of these things is governed at least in part by a contract. Why do businesses sometimes sell products or services without a contract yet, in other situations, require a contract? The answer to this question should help you to generate some ideas for your initial post.