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Invalid Contracts Can Cost Your Business

Back in the day, many deals were made based on nothing more than a handshake. While you may still do business with a friend or family member without drawing up formal paperwork, having a valid written agreement in place can mean the difference between a project completed on time and a messy legal dispute that can put your business on hold for months.

Elements of a Valid Contract

While some contracts run thousands of pages long, and are stuffed with complex legalese, there are actually only five basic elements to a valid written contract: parties, promise, time limit or deadline, consideration, and signatures.

  • Parties: Persons or entities entering into a legal agreement.
  • Promise: Actual goods or services being produced or delivered.
  • Time Limit or Deadline: Period covered by the contract, or the end date of the agreement.
  • Consideration: Payment or remuneration by one party to the other.
  • Signatures: Provided by all parties to the contract or their authorized representatives.

Written agreements must include all five elements to count as a valid contract. However, it is possible for an agreement to include all five of the elements listed above and still be invalid.

Reasons for Contract Invalidation

One of the most common reasons a contract is invalidated is because one or more parties is not eligible to enter into a legal agreement. For instance, minors are usually not eligible parties to a contract. Someone attempting to sell property that he or she does not own free and clear is almost never eligible to enter into a contract.

Another common reason for contracts to be ruled invalid is because the promise—the basis for the agreement—is invalid. For instance, contracts for illegal acts are never valid. Likewise, contracts based on fraud or misrepresentation are also invalid, as well as frequent targets for adverse legal action.

Potential Drawbacks of Oral Contracts

Many people mistakenly believe that oral contracts are automatically invalid. However, many oral contracts are perfectly valid. The problem with oral contracts is that they are often unenforceable. The signatures on a written contract provide proof that the parties have entered a legally binding agreement. With an oral contract, there are no signatures, which makes it more difficult (but not impossible) to establish proof of a binding legal agreement.

Leave It to the Professionals

While it’s probably OK to hire your neighbor’s teenager to mow your lawn without a written contract, for interactions involving your company, it’s highly advisable to have a written agreement. Working with professional attorneys like those at Law 4 Small Business, can ensure that your company’s agreements are both legally valid and enforceable. Give us a call today.

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot company.

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