Frequently Asked Questions About:

Contracts in the United States

1. Why are contracts relevant to my business?
2. What is a contract?
3. How are contracts formed?
4. When should I use a written contract?
5. What happens if I do not have a written contract to document my transactions?
6. What is the difference between intellectual property rights and contract rights?
7. Is it okay to use a "standard form" contract?

Why are contracts relevant to my business?

Every business is involved in transactions with other parties, many of which constitute legally binding contracts.  Written contracts document your rights and responsibilities in connection these specific transactions.  When these transactions involve the acquisition or the exploitation of an intellectual property, written contracts are critically important to properly document the nature and scope of the intellectual property rights involved and to describe each party's other contractual rights, responsibilities and remedies.

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What is a contract?

A contract is simply an agreement between two or more parties who intend to be legally bound by the terms of their agreement.

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How are contracts formed?

Contracts can be formed in a variety of ways, including by oral agreement, commencing performance, written agreement, and manifestation of assent, depending on the facts and circumstances.  The sequence of events leading to the formation of a contract includes an offer, an acceptance of the offer, an exchange of consideration or something of value, between the parties, in connection with a lawful purpose.

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When should I use a written contract?

Generally, you should always use a written agreement to document your contractual rights and responsibilities, and to be sure that all parties have a clear understanding of the scope and nature of the agreement.  However, a written agreement is not always necessary for a contract to be legally enforceable.  

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What happens if I do not have a written contract to document my transactions?

What happens will in large part depend on the facts and circumstances of your specific situation.  What can happen is that a court may not recognize your agreement as being an enforceable contract.  If you do not have your agreement in writing, then you will have to rely on corroborating evidence to prove that you have a contract.  Another possibility is that you may not obtain all the benefits of your bargain.  In other words, the terms of your agreement may not be clear enough to be enforceable.  Or, you may find that your memory differs from the other party's when it comes to crucial points of your agreement.

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What is the difference between intellectual property rights and contract rights?

Intellectual property rights are created by law.  Contractual rights are created by agreement of the parties to the contract, provided the contract has a lawful purpose.

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Is it okay to use a "standard form" contract?

The first thing to understand about a "standard form" is that someone had to write it at some point in time.  Whoever prepared the form did so from a certain perspective.  For example, a "standard form" publishing agreement could have been prepared by an author's agent or by a publishing company.  In either case the resulting form will likely include provisions that are favorable to the party drafting the form.  You should never assume that a "standard form" will only contain provisions that are in your best interest.  Always read the entire document and make your own judgment based on your own objectives and legal risk tolerances.  It is always wise to consult with a competent attorney.

There are also pluses and minuses to using a standard form contract for multiple independent transactions.  On the  plus side, using a standard form is quicker and tends to make your business dealings more uniform.  If your transactions tend to not be negotiated much by the other side, then this route may work well in your situation.  However, the more flexibility you may need to close your transactions, the more difficult it may be to use a standard form contract.  You should always keep in mind that, even though most of your transactions may occur in a relatively standardized way and under relatively standardized terms and conditions, you never know when the other side may try to negotiate changes. 

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