Contracts are central to any business. They outline agreements with suppliers, employees, customers, property owners, contractors, and many others. As a business owner, you probably interact with and sign contracts on a daily basis, yet rarely think about what happens should some portion of the agreement become a problem and the language of the contract come into play. Contract law is a whole practice unto itself, with rules regarding the specific language of the contracts, which agreement controls when quotes are passed back and forth with terms attached, and whether those insanely long agreements on software and websites that few people read are really binding (hint: they probably are). So what makes a contract legally binding?
What is a Contract?
In short, a contract is an agreement between two or more people where there is an exchange of goods or services in return for some form of consideration. The contract is designed to clearly outline the agreement between parties to prevent future disputes. A well written contract not only covers who is going to do what for how much, but numerous other details that will keep the business deal on track or outline what should happen if a dispute arises.
Contracts do not have to be in writing, though it’s generally a good idea. An oral agreement can still be enforceable, though the details are a tad harder to prove when a dispute arises. All a contract needs are two or more parties who agree to be bound to a legal goal and some form of consideration.
- Contracting Parties: All parties to the contract must be
legally able to enter into the agreement. This means that employees of a
company may not be able to bind the company to an agreement.
A business owner would know better than to enter into a purchase agreement with another company’s receptionist, for instance, but this becomes less clear when someone has a title, such as Purchasing Manager, that grants them the apparent authority to enter into a certain type of transaction on behalf of the business. Many contracts include a section where each party acknowledges that they have the authority to enter into the contract on behalf of the entity they are representing.
- Consent: The parties must all consent to be
bound by the agreement. This consent must be freely given, meaning not obtained
under duress or fraud, and clearly communicated to each other. Consent also
concerns the “meeting of the minds” where both parties come to the decision
that they are agreeing to the same thing, down to the details of the
arrangement. The signature line at the bottom of a contract is generally the
illustration of each party’s consent to be bound by the terms of the agreement.
- Legal Object: You can’t agree to do something
illegal and expect the courts to enforce the contract. The object of the
contract, or thing being agreed to, must be legal, possible, and well defined.
Many contractual disputes occur when the scope of work or the bill of goods is
not defined in detail.
- Consideration: Each party must gain something from the contract. Generally, one party obtains a good or a service in return for money. If there is no consideration, then the contract isn’t binding because both parties are not getting benefit from the arrangement.
Each of these points is frequently an issue in business litigation. If you’re facing a business lawsuit or a contract dispute, reach out to the experienced team of litigators at the Dunn Law Firm. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 and set up a free consultation today.