Contracts
Doing business with another business entity involves agreements. Agreements can be either oral or written. Courts in the U.S. have generally ruled that if the parties have a meeting of the minds (same intent), consideration is paid or given by the parties and they act as though there was a formal, written and signed contract, then a contract exists. However, in some instances a signed, written contract is required, as in the case of real estate transactions. Written contracts are always a good business practice.
For a contract to be valid, it must meet the following criteria:
- Mutual agreement – There must be an express or implied agreement. The essential requirement is that there be evidence that the parities had each from an objective perspective engaged in conduct manifesting their assent. A contract will be formed when the parties have met such a requirement. This is known as the terms of the agreement.
- Consideration – There must be consideration given by all the parties. Each party is conferring a benefit upon the other party. Such as an agreement to give the consideration of cash for a certain number of a specified product. One party confers the consideration of cash to the other in exchange for receiving the consideration of the product. Consideration need not be adequate in order to constitute a binding contract. Buying a car for a penny can still be considered a binding contract.
- Competent Adult Parties – Both parties must have the capacity to understand the terms of the contract they are entering into and the consequences of the promises they make. For example, animals, minor children and mentally disabled individuals do not have the capacity to form a contract and any contracts with them will be considered void.
- Proper Subject Matter – The contract must have a lawful purpose.
- Mutual Right to Remedy – Both parties must have an equal right to remedy upon breach of the terms by the other party.
- Mutual Obligation to Perform – Both parties must have some obligation to fulfill to the other.
- Intention to create a legal relationship – There is a presumption that commercial agreements are legally binding.
Many businesses purchase goods and services through the use of purchase orders. Purchase orders are legal contracts. Generally there are many standard terms & conditions that a company applies to the purchase order. These terms and conditions may be part of the body of the purchase order; they me printed on the reverse side or the purchase order may refer to a public place (such as a website) where they are printed. It is important when dealing with purchase orders to understand all of the terms & conditions. Although the purchaser signs the purchase order, the other party becomes legally bound by accepting and attempting to deliver on the purchase order.
It is always good advice to consult an attorney on contract issues. In order to manage legal costs, it is a good idea to develop a standard contract template that can be used in most transactions.
Intellectual Property
The United States has laws that govern copyrights, patents and other forms that convey ownership of documents, media, designs or idea and inventions to individuals or organizations. They have commercial rights to that “intellectual” property. Violations of intellectual property laws can involve serious penalties.
Examples of violations of intellectual property rights include:
- Manufacturing and selling imitation Rolex watches
- Manufacturing and selling imitation Louis Vuitton handbags
- Copying and selling CD/DVDs of music, videos or software
- Reproducing and selling books or prints of art work
© 2006-2007 East-West Economic Development Center