A Contract is a mutually bargained for exchange of promises between at least two parties (or entities) that is lawfully binding. Each party to an agreement has some type of obligation to perform, in its most basic form it is essentially a promise for a promise. Because a contract is legally binding, violation of its terms and conditions can lead to liability and damages. Some contract violations can even create regulatory compliance issues.
Today, contracts are essential to running a business. The level of complexity and detail included in contracts has evolved over time. In years past, many business agreements were simply formalized with a handshake. But, today, most businesses use written contracts with an increasing amount of detailed terms specifying the obligations of each respective party.
Having a well-written and understood contract is one of the best defenses against a future lawsuit. It ensures that the contracting parties clearly understand their respective commitments and in turn their rights in the event of a breach.
As a business owner, you are likely to encounter many types of business contracts.
The following are business contracts are common:
- Commercial property, ground leases and equipment leases
- Purchase and sale contracts
- Construction contracts
- Vendor/Service provider contracts
- Distribution/Supply contracts
- Independent contractor and Employment contracts
- Managed service provider contracts
- Loan contracts
A basic understanding of these contracts and the negotiation points in each is critical to avoid costly liability that could lead to material losses and future litigation.
Why you should have your contracts reviewed
A business that does ignores the details of its contractual terms is likely to run into a breach of contract issue that could lead to a lawsuit. Generally, the types of claims that are litigated concern substantial damages and are costly even if you are on the winning side.
The best way to prevent contractual liability is to have your contracts reviewed in advance -before you sign. When in doubt, have your contract reviewed by an attorney, it’s for your protection.
Shawn Leo of the Leo Law Office is a local San Diego business lawyer who provides contract drafting, review and negotiation services. If you are struggling with your contracts, let us help.