Contracts are core documents for business operations. Businesses may rely on contracts to:
- Conduct transactions with outside parties
- Handle internal functions like employment contracts
- Limit legal liability to protect the company and its owner
To truly serve its purpose, a contract must clearly define the obligations and responsibilities of all parties—and the terms must be laid out in detail so that they are enforceable.
A New Jersey business contract attorney can help you understand the essentials of business contracts. Business attorneys are equipped to look out for your best interests and help you avoid costly litigation.
You can get a jump start on understanding business contracts today by learning three essential guidelines to follow for effective contracts. That way, you’ll be ready to take full advantage of professional advice from a business attorney.
Three must-have features for your business contracts
1. Make your contract’s language clear and simple
Breaching a contract is more likely when parties don’t fully understand the terms and conditions of that contract. Meanwhile, clearly-written contracts are less likely to be challenged in court if one of the parties fails to meet their obligations.
To be considered legally enforceable contracts under New Jersey law, contracts must contain three specific elements:
- A definite offer
- Acceptance of the offer
If any of the elements of a contract are missing or questionable, the court could rule that the parties did not have a legally binding agreement.
It may sound obvious, but for a contract to be valid, the offer must be communicated to the other party. An offeror makes an offer to sell a product or property, perform a service, or engage in a business venture. The person who receives the offer is the offeree.
An offer is dependent on a specific promise, act, or forbearance (lack of action).
An offer must be definite and clear so that the offeree understands that an offer is being made and that accepting the offer creates a binding contract.
The offer must also be specific enough to describe what is being offered. For example, in real estate, a legal description of property is more than just a street address, and often includes specific boundaries as measured by a surveyor.
Acceptance is the act of consenting to and approving the terms and conditions of the offer. When an offer is accepted, this creates a legally binding contract between parties. If a party fails to fulfill the terms and conditions of their agreement, the contract provides the other party with legal recourse.
An acceptance only occurs when the acceptance is unqualified and unequivocal. The offeree must agree to the exact terms of the offer as specified by the contract.
If an offeree states they will accept the offer with changes, there is no binding contract. Instead, the offeree has made a counteroffer which must then be communicated to the offeror.
Consideration is an exchange of promises or performance for something of value. Consideration can be money, an item with economic value, or a promise to perform or not perform specific acts.
The consideration does not need a minimum value for a contract to be valid. Both parties must receive something from the agreement. Courts can enforce a contract even if a party receives something of nominal value. An example would be a real estate contract transferring property for “$1 and Love and Affection.”
Without consideration, a contract is not enforceable. Consideration is what distinguishes a gift from an enforceable contract.
2. Provide sufficient detail about expectations and obligations
Contractual obligations are the legally binding promises that make up a business contract. They explain the rights and responsibilities of each party to the contract. Therefore, it is essential that terms and conditions be crystal clear before either party enters into a contract.
It might be tempting to write short contracts to avoid dealing with long and difficult-to-understand documents. However, trying to keep things “short and sweet” could mean leaving out details essential to protect parties from liability.
Suppose a dispute or breach of contract occurs. In that case, a lack of detail can make it impossible for a judge, mediator, or arbitrator to understand what the parties intended when they signed the contract.
The goal is to draft a business contract that is straightforward and simple enough to understand, but with sufficient detail to avoid ambiguity about the responsibilities and obligations of either party. The terms and conditions of the contract should be clear to anyone reading the contract without either side having to explain what they thought or assumed the contract covered.
Here are some points to keep in mind:
- Avoid acronyms and spell everything out
- Never assume anything when writing a contract—if the reader must assume something, the contract is missing details
- Have a neutral third party review the contract to ensure that the terms are easily understandable, such as a New Jersey business contract attorney
A contract should include sufficient detail to remove all uncertainty about what is expected and provide a way to assess whether the parties have complied with the contract terms.
3. Get everything in writing
Verbal or oral contracts are enforceable under New Jersey contract law, with some exceptions.
For example, contracts governed by the New Jersey Uniform Commercial Code, New Jersey Consumer Fraud Act, and the Statute of Frauds and Fraudulent Conveyances must be in writing to be enforceable.
Other contracts that must be in writing include, but are not limited to, contracts involving employment agencies, home improvement contractors, prenuptial agreements, and automobile sales.
But even though some oral contracts are enforceable, they aren’t the gold standard. A written contract provides the fullest possible protection to all parties involved.
Reasons to use written business contracts include:
- Increased clarity of responsibilities, obligations, prohibitions, and consequences for breaching the contract
- Better protection from liability and other adverse consequences
- Financial savings by avoiding disputes and litigation
- Enhanced trust between parties
- Pre-determined strategies for resolving disputes
Written contracts are generally more enforceable than verbal ones, but merely signing a written contract does not make the contract enforceable or create protection for your business. Therefore, it is important to seek legal advice from an experienced New Jersey business contract attorney when creating or entering into a business contract.
Need help preparing your New Jersey business contract?
Negotiating, drafting, and reviewing contracts is essential to operating a successful business. A well-drafted contract is a strategic way to protect your business from disputes and costly litigation.
Our New Jersey business contract attorneys at Dressel/Malikschmitt LLP provide comprehensive legal services to ensure your business is well-positioned with enforceable contracts if things do not go well during a business transaction.
Contact our law firm for a free virtual consultation if you need help preparing or reviewing New Jersey business contracts.
The content in this article is for general informational purposes only. It should not be construed as legal advice or a substitute for legal advice. The information above does not create an attorney-client relationship. Any reliance you place on such information is therefore strictly at your own risk.