Importance of your CONTRACT
Every business regardless of whether it be a brick and mortar type business or on the internet is going to be dealing with multiple different contracts throughout the course of its existence. Thus, a fundamental knowledge of ‘contracts basics’ is KEY.
The intent of the within presentation/ article is to simply familiarize business owners with the most basic of contract terms and concepts.
Keep in mind that in Law School students take an entire year of intense study of contracts and all of the nuances of the same. So, if that is your interest then the writer of this article would suggest going to law school rather than reading the within article as at best it will be rudimentary/fundamental, but none the less, important to the daily life of a business and the persons who operate the same.
- I. What is a contract?
An agreement between two or more people;
- II. The Most Basic Elements of Any Contract:
1- The parties to the contract
2- The subject matter of the contract (what it is about)
3- The term of the contract (number of years over which contract exists)
4- The bargained for ‘CONSIDERATION’ (a promise in exchange for a promise) ;- sometimes called the quid pro quo;
Once you have the four above items, then the COMPONENT PARTS OF ANY CONTRACT ARE AS FOLLOWS:
OFFER; ACCEPTANCE; AND CONSIDERATION.
CONSIDERATION- in its simplest term means ‘something of value’
If I offer to do something for you-services/ make a product/ etc. I do so in exchange for your promise to pay me my hourly rate of $395 per hour times the number of hours it takes me to provide the service or make the product.
- III. BASIC DISCUSSION REGARDING CONTRACTS AND ISSUES ARISING REGARDING THE SAME
In the above eg- PROMISE FOR A PROMISE- You have what we call a BILATERAL CONTRACT- that is to say we have a promise for a promise-this category, i.e. bilateral contract is the most frequently encountered type of contract in our daily business and personal lives.
(UNILATERAL- run an add offering to sell your Ipod for $—-;
Someone comes to your place of business or house and hands you the $$- you are obliged to give him/her the Ipod/ or classic case of You have a sign up in yard – will pay $40. For someone to mow your lawn- Joe comes and Moe’s your lawn- you owe Joe $40)
Example of where
No contract occurs:
I say to a friend , ‘would you like to go fishing with me on Friday?
And the friend responds, ‘yes’-at that point you don’t have a binding contract as there is NO CONSIDERATION—
TOUCHED DAILY BY CONTRACTS
Everyday life has many eg’s of contract:
-when you take your clothes to the cleaners;
-when you sell your lawn mower at a garage sale;
-when you hire someone to wash your windows;
-when you rent a room or an apartment- a lease is a contract;
-when you sign a lease for a premise for your business;
-when you deal with vendors for goods for your business;
– when you enter into various advertising arrangements;
Eg, Yellow Pages; internet advertising; Seo arrangements;
-many services , including but not limited to gas and electric;water; internet etc.
– Auto repairs;
– hiring of a temp. agency for home or business;
METHODS OF FORMING CONTRACTS
Generally speaking contracts are established orally or by way of some form of written agreement.
The prerable approach to entering into any type of contract would be to have it in writing.
Often times you will be involved in a transaction where one or both parties will state they just want a one page contract;
In any type of a semi sophisticated transaction the norm would be more along the lines of a 10-20 page contract in order to better be able to spell out the terms of the contract; however , there are many instances where one can ‘get by’ with a one to four page contract
WHAT IS BOILER PLATE LANGUAGE?
There is usually a good deal of what lay people like to call ‘boiler plate language’ in any given contract, but many times that ‘boiler plate language’ can make all the difference in the World.
SO , REGARDLESS OF HOW SHORT OR HOW LONG, READ THE CONTRACT BEFORE SIGNING IT. FAILURE TO HAVE READ THE CONTARCT IS NOT A DEFENSE IN COURT WHETHER IT BE SMALL CLAIMS COURT OR THE MORE FORMAL CIVIL COURT OF LAW.
WHAT IS MUTUALITY OF A CONTRACT?
Another key item, which can be pretty tricky, is the concept of mutuality—there must be the proverbial meeting of the minds(MUTUALITY OF CONTRACT) —in order to have an enforceable contract.
An eg of this would be a contract that called for something to be performed within 6 months, and the person to perform changed the wording to 12 months and not six months and signed the contract and sent it back to the other party without telling that party of the change;
If the contract said 12 months to start with and then the other party marked through the document and changed the twelve to be a six month term, but then the other party did not see that before he signed, then arguably the necessary mutuality is LACKING-
and if the Court agrees when you put on your case in Court, then you generally will not be able to enforce the contract.
DETAILS IN A CONTRACT ARE IMPORTANT-
If the Agreement is worth writing- then it is worth putting all of the
MATERIAL TERMS (details) into the contract; Many people over do this concept, but specificity is a hallmark of a good and enforceable contract.
ORAL CONTRACTS—contracts don’t have to be in writing to be enforceable;
The contract is always best approached by way of a written agreement , if for no other reason than the written agreement will itself be evidence of what the parties agreed upon.
Statute of Frauds- What is it?
Certain type of contracts are required to be in writing or they are unenforceable;
Examples of these contract are : all leases which have a term of one year or more; sales of real estate ; contract for the sale of good in excess of $1,000.
There are many exceptions to this rule, but for the sake of brevity we will defer the defenses to enforcement of contracts to another presentation/ article.
As the reader/listener can (see/hear) the subject area of contracts, even at a very fundamental stage can very easily become an entangled web.
In the study of contracts in law school , there are chapters of law books on contracts which set out hundreds of pages of analysis of the theory as well as the case law analysis to each one of these very basic elements and idea we have discussed above.
The rule to be learned from all of this is that contracts are all around us, and thus it is best to read all contracts carefully before entering into the same. And, if you don’t know what your are being asked to sign and don’t understand the same, then DON’T SIGN THE DOCUMENT, as a failure to understand in the face of having signed the document anyway, is not a defense to the enforcement of the contract.