The Basics of Business Contracts and Agreements

A business thrives or falls on the integrity of its contractual arrangements. This guide explains the difference between a contract and an agreement, and how they are used in litigation.

Before we get into the basics of business contracts and agreements, review this checklist. Also, check out the 2016 Model Rules of Professional Conduct, released by the American Bar Association.

Business Contracts and Agreements

A solid legal business contract is a practice in redundancy. The objective is to conclusively define the terms of engagement between two parties in a business relationship. A proper contract leaves nothing to speculation.

Business contracts and agreements make up an important category of legal documents, that help keeps business owners, clients, and customers from being taken advantage of. Though verbal contracts carry weight in a court of law, written proof of an agreement or contract is far more ironclad.

For more information on contract litigation, check out, When Should You Pursue a Breach of Contract Dispute?

Business Contracts

In the event of a contract breach, the validity of a contract protects both parties. In the best business practices, a contract will never have to be read by a litigator. However, if a contract arrangement is breached, a written contract is essential.

Business contracts have several boilerplate requirements in order to be upheld as valid in court. One party must come to an agreement regarding an offer made by the other.

Most importantly – both parties must agree to an exchange of valuable asset. For example, a product or service can be exchanged for money or a complimentary service, in exchange. But, without an agreement of a valuable exchange by both parties, a business contract is not valid.

The U.S. Small Business Administration website offers more details on how to create a legally binding contract.

Business Agreements

Whereas a business contract is enforceable by law, a business agreement is not. A business agreement is relative and void of specific obligation on the part of either party. At the point which each party specifies and agrees to a mutual exchange of services, an agreement becomes a contract.

For example – party A and party B agree to a business relationship. The relationship involves party A to make a product for party B, at which point party B will pay party A for the product. This is a business agreement.

Party A sends a contract to party B, outlining the costs and details of payment – to which party B is to sign. Once this agreement takes on payment details that are agreed to by both parties, the agreement becomes a contract.

Written vs. Verbal Contractual Agreements

Some contractual agreements can be verbally binding – and others cannot. Marriage is an example of a non-verbally binding contract. Legal marriage requires a written contract to be agreed upon by both parties.

Verbal agreements are not legally upheld regarding long-term arrangments, like pre-nuptials or wills. However, for short-term business arrangments, parties can become legally bound to contractual agreements made verbally.

Always Put it in Writing

Business contracts and agreements require clearly stated terms that are agreeable to both parties. At Manfred Law, we strongly urge every small business owner to put their contracts in writing.

Feel free to leave questions and comments in the space below. For more information on business litigation and the contract writing process, check out our blog for in-depth guides. If you found the information in this article helpful, share this post on social media to spread the knowledge. Thanks for reading.

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