As any business owner knows, relationships and agreements with customers, vendors, suppliers and other business associates are vitally important to the success of your business. Almost every business transaction requires a contract of some sort whether it is oral or written. As such, it is vitally important that each businessperson understands the essentials of a legally binding contract.
Creating binding contracts
In order to create a legally enforceable agreement, all parties to the contract must be competent, i.e. cognizant of what he or she is doing. Additionally, the contract must be created by mutual consent; all parties must realize they are creating an agreement and have a meeting of minds about the subject of the contract.
A contract cannot require someone to perform an illegal act and must comply with the laws of the state in which the agreement was created. Often, businesses and corporations from different states form agreements and, in those situations, the contracts should contain clauses indicating which state’s laws apply.
Commit all terms to writing and do not rely on oral or written promises or representations that are made outside of the contract; if a dispute should later arise, only the particulars of the written contract will be enforceable. Some types of contracts are required to be in writing, such as real estate transactions and contracts that will take more than a year to perform.
When a dispute arises
Unfortunately, even the best-negotiated contracts do not always prevent disputes. When faced with the possibility of contract litigation, do the following:
- Reread your contract carefully. Does it state what you intended – and recollect – from the start?
- Review the particulars of the termination clause. How can you legally end the contract?
- Double-check key dates. Was a deadline missed or do some dates trigger differing events?
- Verify compliance with contract terms by both yourself and the other parties. Was there a breach?
- Consider all various options. Do you really have to end the contract or is there another, better way to get what you want?
- Calculate the cost of terminating the contract. Is it worth it to serve a notice of breach or would it be better to renegotiate the terms of your deal?
Occasionally, it is better to walk away from a deal-gone-bad than to fight it. However, even coming to that decision may require professional assistance.
A lawyer can help
If you are in the process of creating, renegotiating, terminating or merely deciding what you want to do about a business agreement, consult an experienced contract attorney. A lawyer knowledgeable about all stages and types of contracts can help.