A business is built on a series of interwoven agreements and relationships. Small business owners often trust that their personal relationships are strong enough to ensure that agreements will be honored. But a well-written contract not only helps enforce these agreements, it can also strengthen vital relationships.
What is a contract?
In simple terms, a contract is a legally enforceable agreement. The precise conditions that create an enforceable contract vary from state to state. But, a few basic elements must be present.
First, a contract must be something both parties have agreed to. Typically, this occurs when one party makes an offer or a counter offer, and the other party accepts that offer. Second, both parties must exchange something of value. A promise to do something, or not to do something, is sufficient. Third, the terms of the agreement must be sufficiently definite for a court to determine what the parties have agreed to.
Contracts can be written or oral, formal or informal. The best contracts are ones that explain what each party has agreed to do in plain language.
Why written contracts?
While oral contracts are enforceable, there are many reasons not to rely on them. First, every state requires that certain types of contracts be in writing to be enforceable. These requirements vary from state to state, and include both the obvious (contracts for the purchase of land) and the innocuous (contracts guaranteeing the debts of a third party). If you're dealing with an important agreement, it's best to make sure you've complied with the law by getting something signed and in writing.
Second, while it might seem counterintuitive, a written contract actually helps parties stay out of court. Most business disputes arise out of a disagreement about what the parties agreed to do, not one party simply refusing to do what it promised. Taking time to put an agreement in writing will help avoid misunderstandings that can lead to disputes and lawsuits.
What should be in a written contract?
Each contract is as unique as the underlying business relationship. However, every contract should cover a few key points. A contract for the purchase or sale of goods should usually contain terms like the parties involved, the time and place of delivery, the time and method of payment, the product description and the unit price. Cliff Ennico, small business author and lawyer, suggests business owners make sure certain elements are clear in their contracts: who is doing what and when; what are parties not going to do; how much is being charged; and, when payment is due.
You may also detail what the parties will do should something unexpected occur. For example, under what circumstances may a party cancel the contract? Who bears the risk of damage or loss during shipping? How will disputes be resolved? Contact Steven Peck's Premier Legal toll free at 1.866.999.9085 to talk to an experienced California Business Attorney and visit us on-line at www.premierlegal.org.
