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The difference between simple contracts and formal contracts

On Behalf of | Apr 9, 2024 | Business Consulting & Advice |

Contracts are the foundation of all business relationships. A contract can be tailored toward serving specific purposes and protecting parties involved in transactions.

There are numerous different contract types and potential terms. Some contracts may be simple, while others are formal. What is the difference between simple and formal contracts and which type should your business use?

The construction of contracts

An agreement between two parties can be formulated by either a simple or formal (or finished) contract. These two types of contracts have very different forms. A simple contract can be oral or in writing, but the terms are generally straightforward. A formal contract, on the other hand, should be written and it may even require witnesses to observe the signing process. There may also be numerous terms and clauses.

Are both types of contracts enforceable?

Both simple and formal contracts may be enforceable, but the enforceability of simple contracts can be much more problematic. This is especially the case if the agreement is oral. The terms of an oral agreement may be lost in translation and both parties may tell completely different stories, making it difficult for any court to come to a formal ruling.

Formal contracts are typically much easier to enforce. When both parties have entered into the agreement voluntarily, and none of the terms are grossly unfair, a court will often insist that the contract is honored or that compensation is paid for breaches of the agreement. If your business is involved in any kind of contract litigation, it is pivotal to have a lawyer on your side.

Before signing any contract that involves your business, it is always wise to have it reviewed by an attorney. We help businesses with drafting, reviewing, terminating and enforcing contracts. If you have a question, feel free to contact us for a consultation.