Contracts 101: What is a Contract?

Contracts are very beneficial to businesses of all sizes. When you negotiate a contract, it forces you to think through your deal more thoroughly. Further, if a dispute arises, they can help the parties identify liabilities and damages and lead to a faster settlement.

In this post, we discuss three cornerstones of contract law you should know.

What is a Contract?

Blacks Law Dictionary defines a contract as “an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.” To reach that agreement, all you really need is an offer from one party and an acceptance by the other party. Lawyers call that a meeting of the minds.

Notice that the definition doesn’t say a “written” agreement. That’s right – oral contracts are enforceable.

Oral Contracts

Oral contracts are enforceable (but see the note below). But they are hard to enforce because the terms are hard to pin down. That’s why you should always put your contracts in writing and have everyone sign the writing (or as we like to do it, using DocuSign).

Realistically, you probably won’t reduce every contract to a writing. But you can take steps to protect the deal. After making an oral agreement, email the other party with a list of the contract’s key terms and ask them to respond accepting those terms. That way, you’ll at least have some documentation of the deal’s terms.

**Note: In a limited number of circumstances your contract must be in writing and signed by the parties. This is intended to protect you from someone claiming you have an oral agreement regarding something very important like debts, marriage, land, etc. To learn more you can research your state’s Statute of Frauds.

No Magical Words

Nothing annoys us more than legalese.

Here’s the rub: in some legal documents (real estate deeds, for example) it is critical that you use very specific language (that often sounds very old fashioned and hard to understand). But the vast majority of legal documents do not require legalese. Lawyers use legalese for many reasons (habit, tradition, to look smart, to justify their legal bills, etc.) but they really don’t have to.

“Tim shall paint Bob’s house on July 1, 2016” is just as enforceable as “Tim covenants, promises, and hereby agrees to paint Bob’s house on the first day of July, 2016.”

In most situations, you don’t need to use legalese, you just need to make sure your contract’s language is unambiguous. Check out this guide to learn five simple drafting rules.

Bonus Tip: Don’t Screw Up Party Identification

The preamble should clearly state the identity of the parties. If you are signing for your startup, use the startup’s legal name in the preamble and not your personal name. Additionally, the signature block should make it clear that you are signing the contract on behalf of your startup, not you as an individual. Learn more in this guide.

(This article is general in nature and is not legal advice.)