Why a Handshake and a Promise Isn’t Enough

» Posted by on Jan 26, 2017 in Uncategorized | Comments Off on Why a Handshake and a Promise Isn’t Enough

Why a Handshake and a Promise Isn’t Enough

The good old days of doing business with a handshake and a promise are long gone. It’s indeed a nostalgic idea, but small-business owners today need more than a verbal contract to protect themselves.  While it not only makes good business sense to have all contracts in writing in order to avoid ambiguities, in Pennsylvania the Statute of Frauds requires it in most cases.

The Why of It

Simply put, your business is not safe from contract disputes, whether the contract was verbal or written. However, a written contract that covers all elements of the deal is much easier to defend if you get sued.

It’s common to assume that business agreements with known business associates, friends and even family can be made without a written contract. Disputes between people who know one another, however, can be much more damaging than those between people you barely know. You don’t want to learn the hard way that you should have had a written contract for that deal with your brother.

Your business is your livelihood. Think of contract use as a protection against the worst case scenario. A comprehensive contract proves that you and someone else are on the same page.

The Elements of a Business Contract

In order to cover all the bases, a contract must contain elements that demonstrate and validate the agreement between two or more parties. The elements that make up a legally binding contract include the following:

  • Offer: The offer is one party’s promise to act. For example, a contractor may offer to renovate a bathroom.
  • Consideration: Consideration is the value promised in exchange for the specified offer. In other words, the person receiving the renovated bathroom promises to pay the contractor for the work.  More broadly, Consideration is performing an act or refraining from performing an act, in which the party was not previously obligated to do.
  • Acceptance: The parties agree that the offer and consideration are accepted.
  • Mutuality: Mutuality means that all contracted parties had “a meeting of the minds” and agreed to the substance and terms of the contract.

A business contract should also contain the date signed, full legal names of all parties or entities, payment amounts, due dates, expiration dates, an outline of damages for breach of contract, and clearly detail the duties of all involved parties. It should also explain how the contract can be terminated. As a business owner, you can limit your liabilities within the contract. Different situations may call for additional elements, such as a competency and capacity section.

Addendums may be added to amend the original contract as long as all parties agree. Written contracts cannot be amended verbally. They must be amended in writing and signed or initialed by all parties involved.

Beyond Client Contracts

Business contracts are not limited to those between the company and clients. If you hire employees, you need an offer letter agreement and an employment contract. If you want to bring a partner in, you need a written partner agreement. To protect your company’s proprietary properties, such as customer lists and software, you have to have a confidentiality agreement ready to sign. You can still use a handshake, but protect your business with a written contract as well.