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The Basic Requirements of a Written Business Contract
What comes to mind for most people when they think of the word “contract” is a formal written contract that has signatures on the final page. Beyond that, what is required in a written contract is murkier. In this article, we look at the basics of a written contract. A talented and experienced San Diego corporate attorney can help if you need a contract drafted or reviewed.
San Diego Corporate Law: Basic Idea Underlying a Written Contract
The basic idea underlying a written contract is this: The agreement of the parties is reduced to writing. That sounds simple, but, in truth, reducing the parties’ agreement to writing is more complicated than it sounds.
A contract is only a contract if the terms are clear enough that the parties understand what each is required to do. For example, let’s imagine a contract says: “PARTY A will deliver, on each Saturday, goods and services to LOCATION XYZ in exchange for payment.” Without more, this is not an enforceable contract. The terms are not sufficiently defined for a court to know what the parties agreed to do. What are these “goods and services” that are to be delivered? What is the “payment amount?” A contract must be sufficiently definite to be enforceable. This is codified in California law at Cal. Civil Code, § 1598 which states:
“Where a contract has but a single object, and such object is unlawful, whether in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void.”
See also Ladas v. California State Automobile Assn., 19 Cal.App.4th 761 (Cal. App. 1993); Cal. Civil Code, §§ 1549-50.
A good corporate attorney will ensure that your written contract avoids vagueness of expression and is otherwise enforceable.
San Diego Corporate Law: Basic Requirements of a Business Contract
From the foregoing, it can be said that the first basic requirement of a San Diego business written contract is that it set out clearly the obligations of the parties. Every contract is unique, so the obligations of the parties will also be unique to each contract. The obligations can be quite simple: The first party is to deliver a truckload of apples and second party is to pay $10,000. But as noted above, the obligations must be clearly understood for a contract to exist and be enforceable.
Additional basic requirements are:
- Identity of the parties: This may sound simple, but sometimes can cause problems; if the FIRST PARTY arranges for THIRD PARTY to deliver the truckload of apples, is that still performance and to whom is SECOND PARTY making payment?
- Timing: When the obligations are to be performed is essential
- Location: Likewise, where the obligations are to be performed should be stated
- Rights if the other party breaches: If one party does not perform, what actions may the other party take? what damages may the other party recover?
- Signatures (or other evidence of accent/agreement): To be enforceable against a party, there must be some evidence that the party agreed to the contract terms; signatures are the easiest “proof” of agreement (but other “proofs” of agreement are possible)
Obviously, there are other provisions that are helpful and useful in a written contract. As noted, a good corporate lawyer can help. But these are the basic requirements.
Call San Diego Corporate Law Today
For more information, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Good, well-drafted contracts are essential to protect you and your business. A “bad” contract can end up costing your company significantly in terms of delay, contract obligations, and potential legal fees and an adverse court judgment if breach of contract leads to litigation. Call Mr. Leonard at (858) 483-9200 or contact him via email. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and assists business owners in San Diego and the surrounding communities.
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