Understanding the Validity of a Contract

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When you start a business, you can expect to be signing contracts with different parties for the duration of your operation. This is a very risky part of business, but is also a very normal part of it.

The only way to protect yourself is to determine the validity of a preferred contract before you sign and make a commitment.

As a business owner, one thing that you will constantly deal with is a contract. Whenever you do business, you and your partners will always enter into contracts. In fact, the mere action of incorporating a corporation or partnership requires people to sign and notarize a contract as a sign of good faith and to show that the venture is legal.

Because of its importance, businessmen go to great lengths and take some time to determine the validity of a contract. In business, just because you are extended a contract it doesn’t mean that you should sign it already. You should look into its terms and provisions first to see if you will not run into problems later on after signing that piece of paper and finalizing the deal.

The requirements for the contract to be valid are actually very simple. Here are the points that you should look for when a contract is offered to you in relation to your business:

  • The parties to the contract should be clearly defined
    This part is important since it shows who are bound by the terms and provisions of the offered contract. The parties listed in a contract are the ones that reserve the right to do something under the contract.

    The most common example is the Terms and Agreements statement that most users are required to read when joining a website. In this case, the parties here are the users and the owners of the website. If you do take the time to read it, you’ll find that there is a provision in every TOS stating that the website reserves the right to terminate the membership given certain circumstances.
  • There is a clear object of the contract
    The object is the item for which the contract has been formulated. It doesn’t even have to be a tangible commodity; as long as there is something defined in exchange for your part of the contract, then that qualifies as the object of the agreement. The object of the agreement should also be legal, otherwise you will have trouble suing the other party later on if a breach is committed.

    For example, you are running an advertising firm and someone approaches you with an offer of a marketing partnership. The contract offers you a fixed fee in exchange for your company undertaking the marketing campaign for their product. In this sample scenario, which is the object of the contract? No, it is not the product but rather the advertising services that you are to extend on their behalf.

2 Comments

  • 1. Indira Rodrigo said on 7/30/2010 9:37:14 AM
    Toronto, Canada.
    Does there have to be a receipt of cash to make the contract valid? e.g. I agree to rent out my private school hall to a party. But the party pays only at the end of each month and has constant complaints about the premises, heating, air-conditioning etc. which I have not mentioned in the contract. Also the purpose for which she uses the room are not in keeping with the beliefs of my organization. How can I get her out asap? No financial payment has been received in advance. Please help. Thank you.
  • 2. mallisha said on 9/25/2014 9:16:04 PM
    For a contract to be valid, it must be enforceable by law, this means that all the elements of a contract must exist in the agreement and it must be written, signed, sealed and delivered.also each party must have a copy of the document.
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