Chapter 5: Making Sure Your Contracts Hold Up in Court
As we mentioned at the beginning of this guide, it doesn't take much to make a contract valid. To be legally binding, the document simply has to outline an agreement where something of value is exchanged. Once both parties sign on the dotted line, you have a bona fide contract.
Though not all contracts have to be in writing to be effective, oral contracts are much harder to prove. That's why it's a good idea to always put your business contracts in writing.
Let's take a quick look at what constitutes as an agreement and an exchange of value.
The Agreement: What Counts As an Offer
Let's say you're an IT consultant, and you meet with a potential client to talk about their IT needs. You propose a multi-pronged solution to secure their network, including new software to detect viruses and malware. You also give them a price for this service. This is the offer.
After taking a dramatically long sip of coffee, the client beams at you and says you start on Monday. That's an acceptance. Of course, this is the most basic example of an agreement, and there are many routes the conversation can take. For instance, the client may counteroffer with a different rate, and you may have to mull it over. Essentially, you both just need to get to a place where you accept the terms on the table.
And as we mentioned, you'll need to get all this in writing in case something goes awry and that client takes you to court.
The Great Exchange: Things of Value
The thing of value at the heart of the exchange is often a promise to do something in the future. For instance, in the example above, you're promising to implement IT solutions to secure your client's network. Your client promises to pay you the rate you agreed on.
And so the wheels are set in motion.
Keep in mind, though, if one person does something as a gift, it's not a contract. Similarly, a one-sided promise is also not a contract. Both parties have to be in agreement and exchange things of value (e.g., services in exchange for payment) in order for a contract to exist.
Your Contract in Court: Will It Survive?
Every contract is different, so there's no one-size-fits-all solution to making sure a contract holds up in court. However, the following three tips can help:
- Get a lawyer on it. If your contract includes indemnity clauses (and it should), you need a lawyer to craft the language. Plus, it's never a bad idea to have a lawyer review your contracts to make sure they are specific, compliant with state laws, and not overreaching.
- Get it in writing. It's difficult (if not impossible) to prove oral contracts in court.
- Get it signed. A contract isn't legally binding until both parties show their agreement by signing their names to it.
And that's the long and short of it. Now go out there and exchange some things of value.