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Also known as a naked contract or a naked agreement, a bare contract is a type of agreement that is entered into without any real legal effect or structure. Considered to be an agreement without consideration, this type of arrangement amounts to what a promise or gentleman’s agreement. This means that while both parties may have full intent on honoring the terms they agreed upon between them, the agreement is not considered to have any real legal standing.
Since a bare contract is more or less a promise, this type of arrangement is often unenforceable in a court of law. This means that if one of the parties later chooses to renege on the one or more terms of this casual agreement, there is not much hope of any type of legal recourse for the other party. In spite of the lack of legal standing for the bare contract, this strategy is often used to create short-term arrangements between parties who may or may not already have some sort of more formal contractual agreement in place.
One of the easiest ways to understand how a bare contract works is to consider a local coffee shop owner who chooses to extend a small discount to a frequent customer. There is no commitment to offer this discount and it is extended without any type of formal agreement between the two parties. At a later date, the owner finds that it is no longer feasible to extend the discount any longer and begins to charge the customer the standard pricing once more. There is no recourse that the customer can take in order to reclaim the discount since it was not extended through a formal and legal contract. In order to continue enjoying the products offered at the shop, the customer will have to pay standard pricing.
It is not unusual for businesses to make use of a bare contract as a means of extending some sort of short-term benefits. For example, a vendor may choose to waive finance charges on a client account for a period of time as a means of helping a steady client through a slow period. The expectation is that by waiving those charges for a period of time that the client will emerge from the slow period and be able to retire the balance due on the account as sales improve. Another example of a bare contract may involve bartering of services for a short period of time without the formality of a legally binding agreement, allowing each partner to receive something needed without creating additional expenses. Since there is no set end date for the agreement, one or both parties can end the bare contract whenever the arrangement no longer provides the benefits originally envisioned.