The Basics of Business Contracts

Business runs by agreement, and agreements run by the principles of contract.

The simple case of the local convenience store selling milk to a passing customer underlines the centrality of contract in business – the shopkeeper agrees to provide milk of a merchantable, saleable quality in return for payment of consideration for the milk (i.e. the price).

At its most basic level, this is the foundation of contracts in operation, and it is this underlying principle of creating mutual obligations that enables business and commerce to happen.

Contracts are used in practice for a variety of purposes, and they don’t always strictly have to be the detailed, written documents the terminology might initially suggest.

More casual contracts can and do exist in practice in everyday life, and there is often no need to secure a paper agreement to create obligations that can bind another (and potentially hold up in court).

However these agreements manifest, individuals and businesses alike still need to be aware of the difficulties that can arise in negotiating business terms, and it is often wise for arrangements to be committed to paper to ensure sufficient consensus between parties and to provide evidence of the agreement’s existence.

Business contract

Especially where agreements run into some detail, a signed contract will be the most effective practical, if not legal, tool for regulating your relationship.

Where a written contract is presented, it is easier to demonstrate retrospectively what the terms of the agreement were at the point of agreement – almost essential for any court action to stand up.

In those instances where written form contracts are present, the terms need to be well reasoned and carefully worded, in accordance with the local laws and practices in your state.

Business contracts can be written to do almost anything, and the freedom to contract on the terms you choose is an important tenet of the law in this area. However, there are a few terms most business contracts will include, which helps ensure all bases are covered in case arrangements fail to work out along the way.

‘Choice of law’ clauses are a common feature which denote the choice of law and the venue in which disputes under the contract will be heard. This is an important negotiating point in any contract, and most agreements will feature a provision that gets to the heart of this issue.

Always be sure to note the choice of law and its implications should disputes arise – raising an action in a foreign court, for example, might not be the easiest course of action if the contract becomes frustrated.

Whenever an agreement is on the negotiating table, common sense should point towards the definitions as one of the more important areas of consideration.

Definitions are used for brevity and precision in contracts, yet often the definitions themselves can give very narrow and specific meanings to otherwise everyday words.

Successful contract negotiation depends on having this level of insight into the various ways drafting can influence contract meaning.

An attorney is often an essential tool for drafting and negotiating contracts, and a good attorney can help ensure you only sign agreements that are fair and work for your business.

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