Business-Contracts

Business Contract Basics

Five Steps Before Signing a Business Contract.

The basics of business contracts.

Contracts and agreements are important for conducting business for all sizes of companies. In earlier decades, there were few written business contracts, and many business and personal deals were done with a handshake. If a problem arose, the two parties could take the issue to court, and a judge would hear the case even if the contract was not put into writing.

While a verbal contract is still legal (except for in specific situations), most contracts are documented in written form. Contracts have become increasingly detailed these days, and every effort is made to make all possibilities and eventualities clear.

Enforceability.

In addition to being clear and specific, a contract must meet certain criteria to make it legally enforceable. A legally enforceable contract can be used in court to support a decision on a disputed item. If a contract does not have certain essential ingredients, it is not legally enforceable.

 

Most contracts never see a courtroom and they could easily be verbal unless there is a specific reason for the contract to be in writing. When something goes wrong, a written contract protects both parties. If one party to a valid (enforceable) contract believes the other party has broken the contract (the legal term is breached) the party being harmed can bring a lawsuit against the party who it believes has breached the contract.

 

The legal process, or litigation, determines whether the contract has been breached or whether there are circumstances that negate the breach. The court, however, will only hear a contract dispute if the contract is valid.

Contracts vs. Agreements.

Many people use the terms contract and agreement interchangeably, but they are not precisely the same thing. Black’s Law Dictionary defines an agreement as “a mutual understanding between…parties about their relative rights and responsibilities.” It defines a contract as “An agreement between…parties creating obligations that are enforceable.” 

Essentials of Business Contracts.

There are six required, essential elements for a contract to be valid (enforceable by a court). The first three, considered here together, relate to the agreement itself, and the other three relate to the parties making the contract. 

Offer, Acceptance, and Mutual Consent.

For information on how to obtain a permit when one may be necessary, contact the city or town clerk in advance of the event. However, the First Amendment prohibits an advance notice requirement from being used to prevent rallies or demonstrations that are responses to unforeseeable current events.

Additionally, a permit cannot be denied because the event is controversial or will express unpopular views. Some government offices may charge a filing fee to pay for the administrative costs of processing the permit. The fee cannot be unreasonably large, and may need to be waived for indigent protesters. Insurance bonds also cannot be required.

Consideration.

There must be something of value exchanged between the parties. The thing of value may be money or services, but both parties must give something (otherwise, it is a gift, not a contract).

Competence.

Both parties must be of “sound mind” to comprehend the seriousness of the situation and understand what is required. This definition requires that neither party be minors, both must be sober (not under the influence of drugs or alcohol when signing the contract), and neither can be mentally deficient. If one party is not competent the contract is not valid and the non-competent party can disavow (ignore) the contract.

Legal Purpose.

The contract must be for a legal purpose. It cannot be for something illegal, like selling drugs or prostitution. Remember that it is not illegal to enter into a contract that doesn’t have all of these essential items; it just means that if an essential is missing the contract cannot be enforced by a court.

When a Contract Must Be in Writing.

As noted above, verbal contracts can have the force of law, but some types of contracts must be in writing, like long-term contracts and contracts for marriage (pre-nuptials). There is also such a thing as an implied contract. You can unknowingly enter into a contract with someone and be forced to abide by its terms.

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