5 Tips for an Enforceable Contract
By Lane V. Erickson, Idaho Business Lawyer
If you are reading this article it’s because you likely have questions about whether a contract you have already entered into or one that you want to enter into will be enforceable when it is done. It’s good that you are being proactive in determining what your rights are concerning your contract. Being proactive in determining what your rights are as you create a contract or as you make sure that it is fully performed is vital to your success in business. If you aren’t active in protecting your own rights, it’s likely that no one else will do it for you. As one of my law professors used to say, if you sit on your rights then you have no rights.
At the Racine law office, we have assisted clients in both the creation and the enforcement of contracts for more than 70 years. Our business attorneys have the skill, experience, and expertise to help each client with their business needs, including creating and dealing with contracts. Our business law attorneys include partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of the attorneys on our team have the ability to help you in creating and enforcing your business contracts.
The main purpose of this article is to provide tips for you on creating an enforceable contract. The same tips can be useful in determining whether a contract that already exists will be enforceable. Our goal would be to help you avoid expensive legal problems that could arise when dealing with a contract. To be sure, there are many things that are important to consider when it comes to the creation and the enforcement of a business contract. While this article provides some information that is helpful, there may be other issues or things that you should discuss with a qualified business attorney. With that being said, here are five tips to help you create an enforceable contract.Put It in Writing
Perhaps the most important tip that we can give you is that your contract should be in writing. In Idaho, as well as in every other state, a contract can be either in writing or oral. In other words, a contract does NOT have to be in writing to be enforceable. However, there are far more problems that can arise with an oral contract than can arise with a written contract. The reason for this is obvious. When a contract is in writing, it is much easier for the details to be spelled out in a way that is understandable for everyone and that avoids confusion or misunderstandings about what the terms of the contract will be.
More importantly, with a contract being in writing, fewer disputes can arise between the parties about whether or not the contract is being fulfilled. When a contract is oral, either of the parties can claim that the terms and conditions of the contract are different from what the other party believes them to be. This almost always happens when one of the parties realizes that the contract really isn’t as good for them as they thought it was going to be. When this occurs, it’s easy for the party to change their mind about what they believe the purpose and terms of the contract were.
When issues about an oral contract cannot be resolved and litigation arises, then serious problems can come up. Usually, in this circumstance the parties come forward and both of them testify about what they believe the terms of the contract were. Unless there are other witnesses that can be called, or evidence about what each of the parties actually did can be provided, it then comes down to each party giving their version of the oral contract to the court and then the court deciding which person they believe the most. It’s a classic “his word against mine” situation that is very difficult to resolve.Keep the Language Simple
Assuming that you do follow the first tip listed above, which is to put your contract in writing, the second tip is that you need to keep the language in the contract simple and easy to understand. In other words, you don’t need a lot of legalese or legal terms or legal language in a contract in order for it to be enforceable. Rather, a contract is enforceable if both parties understand it, and agree to it.
A contract can be avoided, or determined to be invalid, if there is evidence that one of the parties didn’t understand the contract to be the same as the other party. In other words, if there is not a “meeting of the minds” on what the terms and conditions of the contract are, it’s possible that a court could determine that the contract, even though it is in writing, is not valid. The best way to avoid this is just to keep the language in the contract simple.Include the Details
In addition to keeping the language in the contract simple it is also important that you include all of the details that are necessary for the contract to be clearly understood. Some of the basic details would include who the parties to the contract are, what each party to the contract is required to do in favor of the other party, how long the contract lasts, and a description of the essential information necessary for the contract to be performed.
Because each contract is unique, the information contained in the contract will also be unique. However, a simple rule of thumb can help you if you are creating a written contract. Just ask yourself this question: would a person who has not been involved in the discussions that caused this contract to be written understand what the contract means if they were to read it? In other words, would an outside third-party understand what the contract means if they were to read it and not have any additional input from any other source.
If your written contract cannot pass this test, then we suggest you provide more detail about what the terms of the contract are. You can still keep your contract very simple, even when including the necessary details. However, if you miss an important detail the contract may no longer be valid or enforceable.Be Specific About How the Contract can Terminate
One of the most important details that you can include in your contract is how it can be terminated. An example here might be helpful. Let’s suppose that you operate a snow plowing and removal business and that you entered into a contract with a retail store to clear the snow from their parking lot during the winter. The first winter you are healthy and you have no competitors. As a result, you’re able to fully perform this contract.
Now let’s suppose that during the second winter you have a competitor who is willing to do the same work for your client for a cheaper price. Let’s also suppose that you have developed a health problem. If you do not have a termination clause in your written contract, neither you nor your client can end the contract for any reason without the agreement of the other party. However, if there is a termination clause, your client might be able to terminate the contract to get the cheaper price from your competitor. Likewise, if your health makes it so that you can no longer perform the snow removal, you may want to terminate the contract as well.
One possible termination clause may simply say that either party can terminate the contract with 30 days written notice. An additional termination clause may simply say that the contract can be terminated at will by either party upon written notice. An additional termination clause may simply say that if your client can find a cheaper price, you are required to either perform the contract at the cheaper price or you have the option of terminating the contract instead. These are just a few examples of the types of termination clauses that you may be able to put into a written contract.Use an Integration Clause
Perhap the most important tip that we can give you about details that should be in your written contract is that you should include an integration clause. An integration clause is used by lawyers in a written contract so that the only enforceable terms that are applicable to the contract are those that are written into the contract. In other words, neither party would be able to bring other communications such as emails or letters or any prior negotiations as evidence to show what the terms of the contract are. Some lawyers called this the Four Corners Rule which simply means that the enforceable terms of the contract are contained within the four corners of the written document itself. Under this rule, no other evidence is allowed to be presented which simplifies enforcing the terms of the written contract.
We have helped numerous clients work through the creation and enforcement of contracts as part of their business operations. This article provides some tips but not all the information that you might need to help you in the creation and enforcement of your own business contracts. If you have questions about your contracts, we are confident that we can help you.Enlist an Idaho Business Attorney to Help You
Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at firstname.lastname@example.org or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.