A business contract is perhaps the most important document a business owner needs to run his business. A contract is a promise that is enforceable by law. Making sure the contract is enforceable and has the specific elements that have relevance to your business will ensure that the business is protected if there is a contract dispute at some point.
Most contracts such as employment, lease and general business contracts are governed by each state’s common law, which evolves over time through judicial decisions. However, contracts involving the sale of goods or the enforceability of security interest fall under the Uniform Commercial Code, or UCC, or versions of it in each state.
Kentucky adopted new UCC forms in July of 2013, allowing businesses to enter into commercial contracts overseen by the Secretary of State’s office and filed by lending institutions against secured collateral of Kentucky business entities.
Are there different kinds of contracts?
A basic contract is valid when there is an offer, acceptance of the offer and the consideration, which is the exchange of something of values between the parties. Whether for money, services, personal or real property, or a promise to either act or not act, the consideration must be of value even if it is not of equal value.
There are three basic types of business contracts:
- An express contract clearly states the provisions of the agreement. Although they can be oral, business contracts are usually put in writing because this ensures the greatest legal protection for all parties.
- An implied contract is formed by the conduct of both parties. The intent of the parties is implied by their behavior. Even though there is no formal agreement, an implied contract is as binding as an express contract.
- A quasi-contract is actually a court order providing relief in a situation where neither the express nor the implied contract exists and one side is unjustly benefitting from the actions or goods of another party.
What happens if the other side breaks the contract?
When one party is not fulfilling their contractual obligations, they have breached the contract. When this happens, the other party can seek a remedy by demanding that the contract be enforced or by filing suit for damages for the harm caused by the breach of contract.
A lawsuit over a contract dispute is usually filed in civil court, with small claims valued at less than $2,500 handled in the Small Claims Division of District Court in Kentucky. However, for complex issues, the Kentucky small business owner will need resources to help him to write, execute and if necessary, defend his business contracts.