A contract is a legally binding promise that involves two parties: one making an offeror and an offeree. In some situations, there may be conditional clauses in a contract, giving rise to more than two parties. An offeree can accept a contract and make it enforceable by writing, orally if performance takes less than one year, or by performance. 

For a contract to be enforceable, it typically requires the exchange of something of value, called consideration. Consideration can be of nominal value, but still needs to exist for a contract to the enforceable. Without consideration, there is no conditional exchange. 

When creating a business contract, it’s essential that all of these components, an offeror, offeree, and valid consideration exist, and are memorialized so that a court can enforce the agreement in the event that a dispute arises.

In business, while verbal agreements are occasionally used, it’s highly recommended to have a written contract. This is because memories can be unreliable, leading to misunderstandings about contract terms. 

Furthermore, if one party refuses to uphold their end of the deal, proving the terms to a court can become a challenging “he said, she said” situation. Therefore, having a written contract is crucial as it provides tangible evidence in legal disputes.

Regardless of whether you’re a small business owner, a startup founder, a freelancer, an independent contractor working for one or more other businesses, or a business partner in a complex venture, having a solid grasp of contracts and contract law is crucial to your success, and most important, your protection.

Business Contract Basics:

When entering into a business contract, several key legal considerations must be addressed to ensure the contract is valid and enforceable.

Offer and Acceptance

Offer: A clear proposal from one party to another. 

An offer must be communicated to the offeree and can be revoked before acceptance.

Acceptance: The offeree’s agreement to the terms of the offer. 

Acceptance must be unconditional and communicated explicitly; silence is not acceptance, although substantial performance can be construed as acceptance in some cases, based on industry norms.

Length of Time an Offer Stays Open

• An offer remains open for as long as specified or for a “reasonable” time if no duration is stated. This reasonable time varies by industry and past dealings.
• Offers lapse if not accepted within the specified or reasonable timeframe.

Revoking an Offer You’ve Made

• An offer can be revoked at any time before acceptance, but the revocation must be communicated to the offeree.

Rejections and Counteroffers

• A rejection ends the offer process.
• A counteroffer terminates the original offer and becomes a new offer.

Accepting an Offer

• Acceptance can be verbal or written and must match the terms of the offer exactly.
• Acceptance can also be demonstrated through actions or performance.

An Exchange of Something of Value (Mutual Consideration)

• For a contract to be valid, there must be an exchange of something of value, such as goods, services, or promises.

Best Practices for Drafting a Business Contract:

Confidentiality Clause

• Protects sensitive information by preventing its disclosure.

Non Compete Clause

• Restricts employees or contractors from competing with the business for a specified time after leaving.

Termination Clause

• Outlines conditions for ending the contract, including notice requirements and consequences.

Payment Terms

• Clearly defines payment details such as amounts, due dates, and methods.

Scope of Work

• Defines each party’s responsibilities, deliverables, and timelines.

Intellectual Property Rights

• Specifies ownership and use rights for intellectual property involved in the contract.

Dispute Resolution

• Establishes procedures for resolving disputes, such as arbitration or mediation.

Legal Names and Signatures

• Ensures that all parties are correctly identified and that signatures are authentic.

Contract Templates

• Using standardized templates can streamline the contract creation process.

Have an Attorney Review the Contract Before You Commit

• Legal review helps ensure the contract meets all legal requirements and protects your interests. Signing a contract without a lawyer’s review is likely more dangerous than having no contract at all!