th images menu user export search eye clock list list2 arrow-left untitled twitter facebook googleplus instagram cross photos entrep-logo-svg

Key factors to watch out for when signing a contract

Lest you enter into a \\\'void\\\' contract
By Entrepreneur Staff |

A business contract is a legally binding written agreement between two parties to perform specific acts, such as sell an item or render a service. They are an important part of doing business, and thus have to be created and reviewed carefully.

As a business owner, you will have to sign many contracts—with vendors, customers, employees and other business partners. While small companies often do business based on informal handshake agreements or unspoken understandings, a signed contract is essential when a lot is at stake. A contract serves as a guide and a memorial of the agreement that must be followed by both parties.

According to Jean Murray, an American expert on business law and taxation, a valid contract—which cements a good business agreement—is made up of several elements:

1. Offer, acceptance, and mutual consent
Every contract must include a specific offer and acceptance, and it must be given consent by both parties of their free will. Neither party can be coerced or forced to sign the contract; also, both parties must agree to the same terms.

2. Consideration
There must be something of value exchanged between the parties. The thing of value may be money or services, but both parties must give something (otherwise, it is a gift, not a contract).

3. Sound mind
Both parties must be of “sound mind.” This definition requires that neither party be a minor (under 18 years old in the Philippines), both must be sober (not under the influence of drugs or alcohol when signing the contract), and neither can be mentally deficient.

4. Legal purpose
The contract must be for a legal purpose. It cannot be for something illegal, like selling drugs or prostitution.

5. Remedy
A contract should stipulate how its terms shall be enforced and what actions can be taken if one party fails to meet his obligations. Some contracts will also include “out clauses” where one party can opt to get out of the contract at a certain date. Typically, you can do this by informing the other party, in writing, of your wish to terminate the contract. The courts provide legal remedy for breaches of contract. In civil court, one party to a breached contract may sue the other party for “specific performance,” a legal ruling that orders the defendant to live up to his end of the deal.

ADVERTISEMENT - CONTINUE READING BELOW

Latest Articles

Close