A contract is essentially a legal promise between two interested parties that are exchanging something of value. If a contract is valid, it is enforceable if either party breaches the contract.
Because contracts are an essential part of business agreements, it is important to consider certain factors while drafting them. Not only will this give you peace of mind, but it will also help ensure the contract is valid and enforceable in case something goes awry.
1. How long should your offer stay open?
If you make an offer to sell or buy a business, for example, you will not want to wait for five years to receive an answer. Including an expiration date for your offer on a business contract will dictate the amount of time you would like the offer to stay open.
According to FindLaw, the exclusion of an expiration date on your business contract results in the offer staying open for a “reasonable” amount of time, which is open to interpretation.
2. Are both parties receiving something of value?
For a contract to be legal, both parties must exchange something of worth. This can include money, property, goods or a service. If you write up a contract for someone to simply gift something to you, the agreement would not hold up in court.
3. Is the other party competent?
It is also important to understand that only competent people may enter legal contracts. Someone with dementia, for example, may not be able to make legal decisions anymore. You may have to reach out to a legal representative of the person who can make legal decisions on his or her behalf.
Understanding critical components of a contract can help you avoid making mistakes while drafting a business agreement.