The Basics of Contract Law: What Business Owners Should Know

Businesses will need strong contracts to protect their interests throughout their lifecycle. During this introductory presentation, Attorney Hooman Yavi provides an overview of some contract law basics, including the general requirements for a contract, when a contract must be in writing in California, important components of a contract, protecting intellectual property, and more. 

Contracts must meet the following conditions.

• Offer.
• Acceptance.
• Intent: Both parties want to enter the contract.
• Consideration: What payment will be exchanged for which services.
• Purpose does not violate public policy.
• Capacity: Both parties are of sound mind to enter the contract.
• Mutual assent: Both parties agree to the contract.

WHEN ARE WRITTEN CONTRACTS REQUIRED?

Depending on state law, certain contracts must be in writing. In California the following contracts must be written:

• Agreements that cannot be performed within one year.
• One party is promising to pay the debt of another.
• Real property leases for longer than one year.
• Real estate agency or brokerage agreements.
• Contracts to purchase real property.
• Loans or credit extensions of $100,000 or greater.
• And more.

The master service agreement (MSA) governs the terms of the relationship between the service provider and the customer. The MSA is usually used in combination with a statement of work (SOW), which covers the specific work requirements for the project, liabilities, and parties’ responsibilities. The SOW should make it clear which criteria define when work products are successfully completed.

NON-COMPETE AGREEMENTS

Non-compete agreements limit an employee from competing with their current employer after their period of employment with the firm is over. Additionally, employees also cannot share their employer’s proprietary information with other parties before or after their employment period.

Non-compete agreements are not enforceable in California, North Dakota, or Oklahoma. Hawaii does not allow non-competes for technology companies, and in Utah new non-competes are limited to one-year periods.

INTELLECTUAL PROPERTY RIGHTS

Your contract should clearly define the intellectual property (IP) that is being licensed or assigned. While IP may include patents, copyrights, trademarks, and trade secrets, it can also include proprietary and confidential information.

If a service provider is developing intellectual property for a customer, it is almost always assigned to the customer. It is important that the IP does not infringe on the rights of a third party. Customer lists may be considered IP. This is more likely if customer lists contain public information, such as contact information, that is combined with information that is not publicly available, such as purchase history. It is important to take steps to protect the confidentiality of customer lists.

CONCLUSION

For help developing contracts that protect the interests of your business, contact your trusted Chugh, LLP professional.