Most business owners today understand the theory behind contracts: they’re important, they set out the rules and relationships between businesses and individuals and they’re usually in writing. But for many, that’s as far as it goes, other than calling an attorney for help in writing one, trying to get out of one, or even suing someone to make sure they do what they are supposed to under the agreement.
However, when you understand what a contract says (or doesn’t say), you have a great position when it comes to making a deal, renegotiating a deal, or even breaking a deal.
Here are 5 of the 10 things you MUST have in your contract if you want to make it stand up in Court:
Essential Term #1: Offer
When it comes to an offer, you don’t have to say or write down any magic trigger words. An offer is simply a statement or some other indication that you want to enter into a deal with someone else on certain terms.
Your offer can’t require the other side to do anything. All you’re looking for is a simple agreement: “Yes, I accept your offer.” You also need to be clear that you are going to stick to the terms you made. Once the other side agrees to your offer, you are bound. There’s no coming back with “Oh, but I forgot this one thing.”
Essential Term #2: Acceptance
Acceptance is simply some form of indication by the person receiving the offer that he or she has accepted it.
To accept an offer, you must be clear and absolute, and not attach any conditions to your acceptance. You also must accept the terms as they are given. If you want to say, “okay, but …” and add in a change, that’s not an acceptance. What you’re doing there is making a counter-offer. Now the choice to accept or pass rests with the other party.
Most offers have a time limit. To accept a deal, you’ve got to act within that time limit. Once it’s expired, you can’t take up the offer unless the person making it agrees to extend the offer.
Essential Term #3 – Consideration
A contract is a bargain. When you offer to make a deal and someone accepts your offer, the deal is made. That exchange of promises: “I’ll perform this consulting work for $1,000,” and “Agreed – we accept your offer” is a bargain.
The next step: “Here is our payment” is called consideration. It’s the third critical element in a contract.
Consideration is a benefit or advantage to the person making the offer and a corresponding cost or prejudice to the person accepting the offer. In this case, you’re doing some work for a business owner, who is paying you to have that work done.
Consideration can’t be something given or promised in the past. To be valid, the consideration must be a new promise or some fresh benefit exchanged for the offer.
Legally, consideration is simply something of value that is given. But consideration is also a very objective term. Defining adequate consideration is probably one of the biggest areas of contract litigation.
Essential Element #4 – Date
All contracts have to have a date to be enforceable. If your contract is undated, or has a blank where a date should have been written in, but isn’t, you don’t have a deal. This is another of those super-critical contract elements. When they are missing, the contract isn’t going to be upheld.
Essential Element #5 – All Contracts Must be Signed
The last of the 5 super-critical contract elements is signatures. When you enter into a contract with another party, you’ve both got to sign it. If there are 10 parties to the agreement, all 10 need to sign. A contract isn’t enforceable against someone who didn’t sign it.
That doesn’t mean you must all sign the same physical piece of paper. Having everyone’s sign the same piece of paper at the same time is preferable, but in today’s business world, where people may be thousands of miles away, it’s not always practical. Instead, businesses make use of something called “counterpart” signatures. With counterpart signatures, you could have several different signature pages, each signed by one or more parties to the contract. When all the signature pages are gathered together, you’ve got a full counterpart-signed agreement.
Are fax, scans and photocopies legitimate? Again, that depends. In today’s world, it’s very common for people to fax, scan or photocopy documents as a way to speed up the signature process. It’s up to you whether or not that is an acceptable procedure. But in law, the “best evidence” rule says that an original signature is always king.
To learn more about these and the other 5 essential elements of a legal contract, pick up our product, 10 Things You Must Know to Write a Legal Contract. You’ll get a 37 page eBook, two accompanying audio files, PLUS you’ll get 13 examples of the most commonly-used business contracts, fully editable, that you can customize and use in your business.