10 Things Every Small Business Owner Should Know About Contract Law

As seen on www.KyBizInfo.com.

The law of contracts has been developing since Adam and Eve made a deal to keep away from the apple tree in exchange for a rent-free stay in the Garden of Eden. Over the years, the rules of how and when contracts can be enforced have become more complicated, but contract law is not quantum physics, and, for most of you, it is probably far easier to grasp these basic rules than it is to figure out how to make your employees always show up on time or how to keep up with all the most recent software. If you can understand the 10 concepts described below, you won't quite be ready to sit for the Bar Exam but you may save yourself some headaches and be able to recognize when you need some professional help to stay out of trouble.

There cannot be a binding contract unless the parties actually reach an agreement. The most fundamental requirement of a binding contract is "a meeting of the minds," and unless the parties share a common understanding about the core terms and intend to be bound to those terms, there cannot be an enforceable agreement. Problems arise when the language of a written contract is ambiguous or when the parties have two similar, but slightly different, interpretations of the agreement. An express contract doesn't always have to be in writing. In the right situation an oral contract can be every bit as binding as a written one. The parties have to express their agreement over the core terms, but there is no universal rule that every contract has to be written down to be enforceable. There are circumstances in which a contract is enforceable only if it is in writing and signed by the party against whom it is being enforced. Certain agreements, such as contracts dealing with real estate, or for the sale of goods worth more than $500, or to answer for another's debt, generally have to be in writing and signed by the party against whom they are being enforced. Also, contracts that cannot be performed in less than a year typically must be in writing. Actions can speak louder than words. Especially in transactions between businesses that have dealt with each other in the past, the conduct of the parties alone can create a contract. If the conduct reasonably demonstrates that the parties had a common understanding, a court can find that a contract exists, even if the parties never expressly stated, orally or in writing, their intention to exchange promises. Contracts have to be mutual, with both sides...