Why Even A Simple Contract Can Save Your Bacon

A contract is an enforceable agreement between two or more parties. The contract comprises the claims made by the parties to one another, which is known as"consideration." These promises define the connection being undertaken and what happens if the company relationship does not work out. If one party fails to behave in accordance with their promises, then they have"breached" the contract and could be found liable for damages. The damages typically equate to what the non-breaching party would have received if there had been no violation.

Oral Contract v. Written Contract

You go to a party with a friend and meet someone interested in your service or product. At some point, you agree to supply him with 1,000 units of your product in exchange for a discount. You have created what's called an"oral contract" He's promised to purchase products and you have promised to supply them at a discount. Is the arrangement worth anything? Alas, the answer is most likely no. Why? In most states, oral contracts aren't enforceable if they take an inherent worth in excess of $500. Since it is so tough to establish the conditions of an oral contract in a dispute the legal system attempts to discourage them. In actuality, this legal restriction is usually called the"Statute of Frauds."

Turning back to our example, what if you thought you were going to provide a 10 percent discount and he believed it had been 20 percent? What if you can not solve it and he insists you supply the discounted products? You find yourself in court with the dispute coming down to that party the judge or jury thinks. Are you truly prepared to take that bet?

With a simple written contract, you may make a clause containing language that says you'll provide a 10 percent discount. If the dispute ends up in court, he's asked if his signature is on the floor, the clause is read and you win. The contract should also have a clause requiring the"prevailing party" to be reimbursed for their attorneys fees and costs. In summary, he has to pay your legal bills also.

Another advantage to using a written contract would be the due diligence component. I realize you'll be shocked to learn there are unethical companies. In negotiating a contract, very particular requirements are put in writing.

What if another party starts squirming? It might be a sign they're unable to fulfill their obligations. Might that give you pause before you commit to tying up your stock? You can save yourself a great deal of headaches by finding this information ahead of time.

In short, even a simple written contract should be a compulsory bullet in your arsenal. Much like auto insurance, you'll be glad you have one if a business transaction falls apart.