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5 Important Things to Know About Contracts

NFL Quarterback, Rick Mirer specified that he still get paid even if “the end of the world” happens. Basketball Hall of Fame start, Michal Jordan had a “love for the game “clause, which stipulated that the legend be able to play basketball whenever, wherever. Soccer player, Stefan Schwarz inserted a “no interstellar travel” clause. What do these professional athletes have in common other than making their living off of sports? Unusual contracts. Which brings us to the name of the game: contract law—law that enforces legal agreements made by two parties. While contracts may seem like a simple agree-don’t-agree deal, it’s anything but. As the clauses listed above indicate, contracts can easily become challenging. Which is why it’s important to know these 5 necessary things about them. (It’s one more must-know before conducting a Wisconsin Secretary of State business entity search.) Read more to find out!

Most contracts only need these two items to Be legally binding

Yes, contracts are challenging; however, most contracts only need an agreement from both parties and something of value exchanged in order to be official. Specifically, one party needs to make an offer, and the other party needs to accept that offer. Once the offer is accepted, both parties are in agreement. As for the “something of value”, according to this article, the value exchanged between the two parties could be money, product, services, or a promise to exchange that “something of value.”

Usually you can’t follow two state’s contract laws at the same time

It’s not uncommon for two businesses from different states to work together. However, it’s (usually) impossible for each business to apply their own state’s contract law to the agreement. To ensure this issue doesn’t come up, businesses can specifically state which state’s contract law the contract will abide by. Once the contract is agreed upon, from there on out, (usually) the agreed-upon state’s contract law will be applied. If this issue is not dealt with, the companies may need to go to court to find a solution.

Just because it doesn’t have an expiration date…

Suppose one business gives an offer to another business. There is no expiration date on the said offer. Does it expire? Well, it’s complicated. When no date is specified, the offer then expires after a “reasonable time” has passed. (Know that if there is an expiration date, the offer does expire on that day by that time.) The amount of time for the “reasonable time” period to expire can depend on the situation. Nonetheless, you should know that that the offer can be revoked if the other party hasn’t accepted the offer. But, once the offer has been accepted, this may not be an option.

When there’s an exemption…

Normally there are a number of exemptions in contracts; some types of exemptions include exclusion clauses, limitation clauses, and indemnity clauses.

Exclusion clause

An exclusion clause is what its name suggests, a clause where one party states they are not responsible in the contract if such-and-such occurs. However, know that it’s only valid if it is stipulated in the contract and it’s legal.

Limitation (or liability) clause

This type of exemption clause specifies the damages the party is bound to comply with under the contract. Think of it this way, liability means “being responsible.” So, this clause simply outlines what the certain parties are legally responsible for if a specific situation occurs. In some cases, the compensation may be in the form of money. In other cases, it may be another valuable. Again, it’s what the contract states.

Indemnity clause

An indemnity clause is a provision in a contract that states that a party must give compensation to the other party. The grounds are usually based on harm, liability, or loss because of the contract.

5. Always, always, always read the fine print

“Fine print,” or as lawyers call it, boilerplate, is the small print of the contract. As this article mentions, the fine print may surprise the other party, as it can put them in an unfavorable position. This is some of the meat and potatoes of contract law, and why it’s necessary to get legal assistance on important contracts. Here are some potential fine print illegalities you could find in a contract.

Fine print illegalities

The fine print may specify something that is illegal and goes against contract law. It may also have a provision that’s too hard to read but could determine if the contract is signed at all. In this case, if it’s a very serious provision, it needs to be in larger print. Lastly, the fine print may be too sophisticated for some consumers, especially if a lot of jargon is used to potentially confuse the consumer into signing the contract.

Bonus: oral versus written contracts

In general, both are legitimate contracts. As we mentioned earlier, if all parties agree to the terms and “something of value” is exchanged or promised to, the contract is valid. The biggest difference between the two is one contract is agreed upon orally, while the other is written up. This may not be a big deal for smaller scale contracts, such as a neighbor’s son doing yardwork in exchange for $20. (Know that if the neighbor was doing the task for free, it may be considered a gift, not a contract.) However, on larger scale, contracts—especially business contracts—written contracts are preferable. The reason for this is that they’re easier to prove in court should an issue arise. And, in some states, it may even be required.

Final Thoughts

Contracts are an integral part in business. Familiarizing yourself with contract law can not only prevent you from entering unfavorable contracts but keep you and the other party out of the court room. As mentioned, it’s important that you look up the specific state’s contract laws, as contract law varies by state. Have any more questions about contracts and contract law? How has knowing contract law benefited you and your business? Leave a comment!

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