4 Reasons Business Contracts Fall Apart

Business contracts provide the legal framework for mutual agreement between two business entities. Mutual benefits are realized when the two sides offer products or services in exchange for compensation. However, problems may arise in business deals when one side or the other fails to deliver according to the terms in the contract. Since casual agreements will not provide sufficient protection against loss if an unforeseen event causes the contract to be breached, legal advice must be sought in the early stages of contract creation.

In order to avoid unpleasant surprises with respect to contract terms at a later stage of business deals, there are certain points that must be taken care of in every contract to create a legally binding agreement. They are as follows;

A court of law has the final word in the validity of any business contract. Missing elements in the contract can prove to be costly and damaging to both parties. All valid contracts must possess these elements to be enforced in a court hearing.

Mutual consent, Offer and Acceptance – All parties in a contract must be allowed to enter into the agreement without any compulsion. Either party can claim that consent was not given voluntarily. So, a valid proof that the consent was freely given at the time of entering into the agreement is an important part of every contract. Acceptance of the contract terms are implied by the signatures at the end of the contract.

Sound mind – A person without sufficient mental capacity to agree to the terms of the contract would not be held to the agreement in court. For example; a party should not be in a mental state that would impair judgment, such as under the influence of alcohol or drugs.

Consideration – Both parties must exchange something of value that can be easily measured. Examples are exchange of money, tangible products or paid services. Any other arrangement is considered a gift in legal terms.

Legal purpose – A court of law will not enforce a contract for an act that is against any other law of the United States or its territories. For instance, two business entities cannot sign a legally-binding contract for prostitution, human trafficking or drug running.

The days of a binding handshake are long gone. Every business entity must be aware of the pitfalls of working with other businesses to accomplish a common goal. Strong business partnerships are rare. In the absence of a legally binding contract, breach of trust by one party will result in legal action from the other party which is a time taking procedure. Part of the lawsuit will also include legal fees associated with resolving the dispute. A contract will be binding on both parties only when all of the elements listed above are present.

Start-up business partnerships are formed without consideration of all the ways that the casual agreement can be breached. Both parties should discuss beforehand the ways that each person will contribute to the business. Failure of the business brings new challenges to the situation because personal and business assets are placed in jeopardy without careful legal planning. In such a situation, courts address the situation according to the state laws that apply at the time.

Business entrepreneurs must engage the services of a qualified attorney since partnerships fall under a different set of rules from standard contracts. Ignoring the possibility of failure can be costly when outstanding debts have to be paid from the personal assets of both partners. Verbal agreements concerning the use of financial resources will not stand up in court. Every aspect of the business life must be properly documented to prevent disastrous consequences for everyone involved.

There are attorneys with specific qualifications and experience who can provide legal advice before getting into different types of contracts. Use of the same attorney for each agreement will reduce the amount of time and effort needed to draw up new contracts in the future. Legal counsel will prove to be invaluable for the business owner who wishes to deal in multiple business agreements.

It is therefore recommended that both parties understand the requirements of a legally binding contract. Contracts must be refined and the negotiation steps should be completed with each new partner. Working under valid contracts will mitigate the risk of loss if personal or business problems cause one side to breach the contract terms.

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Jon Tucker is Director of ENotaryClasses.com, the leading provider of notary classes required by the State of California to become a notary public.