To understand how the law will interpret a contract, it’s important to understand how the law sees a contract. The following explanations will help you see contracts through the eyes of the law.

Basic Elements of a Contract
          1. Offer
          2. Acceptance
          3. Consideration
Breach of Contract/Breaking a Contract
Damages
Specific Performance
Rescission
Reformation
When to Write a Contract
Rental Contracts
Property Contracts
Business Contracts
Employment Contracts
Consumer Contracts
Corporate Buy/Sell Agreements; Shareholder Agreements
Verbal Contracts



Basics Elements of a Contract

The law says that a contract has to have three things to be an actual contract:

1. Offer. An offer is a promise to do, or not to do, something within a certain time frame. The strength of an offer increases as the offer becomes more defined. For example, just saying that I will build your fence is not as definite as telling you that I will build you a six foot privacy fence around the perimeter of your property by the end of next month.

2. Acceptance. After someone offers to do, or not do, something within a certain time period, the other party must accept that offer. Acceptance occurs when there is a promise made or some performance done. For the fence example above, after you tell me you can build me that fence, there cannot be a contract unless I agree to have you do what you have offered. Typical acceptance occurs when I verbally tell you, or when I sign my name to a document.

3. Consideration. Consideration is the adequate inducement that is given in exchange for the offer. Consideration cannot be something that I am already legally obligated to do, or not to do. Consideration in the fence example would occur if we agree that I will pay you $5,000 to build the fence.

There are a few more basics to contracts that have been written into law. The law will not recognize the contract if the person signing it does not have the capacity to contract. Capacity can be affected by age, mental ability, illness and disease, to name a few. Capacity can also be affected by whether someone has the authority to contract on behalf of an organization. For example, not every employee of a company has the authority to sign contracts that would bind the entire organization.

The final basic element of a contract is that the law will not enforce an illegal contract. It does not matter that we have written a twelve page contract that both parties have the capacity and understanding to enter into, with an offer, acceptance, and consideration, if the contract details how we will smuggle illegal drugs into the country.

Some contracts are not valid contracts if they do not have a certain form. For example, some contracts are subject to the Statute of Frauds, which requires that certain deals must be in writing, like one to sell goods with a value of over $500; or an agreement that will last for more than one year; the sale of real property; a commitment to loan money in excess of $250,000 and not made in connection with personal, family or household purposes.

Even if all of the above items appear to have been met, there can still be barriers to the formation of a contract that would keep the contract from being enforced. These include such items as mutual mistake concerning a material, or essential, aspect of the contract. Another would be the revocation or expiration of the offer before it was accepted. Sometimes too much time has gone by without anything being done on the contract. People can become incapacitated or die after a contract has been entered into. Finally, the contract may lack the required formality, or items required by law to be in that particular contract, to be enforceable. Back to Top


Breach of Contract/Breaking a Contract

What happens when one of the parties breaches the contract? A breach is the legal term to describe when one of the parties doesn’t live up to their end of the deal. If one party breaches the contract, there are many legal remedies available, such as damages, specific performance, rescission and reformation. Back to Top


Damages

Damages are the usual remedy to a contract breach. Damages are generally designed to put the non-breaching party in the position they would have been in if there had not been a breach. This is most often in the form of a monetary judgment. The non-breaching party does not get a free ride however. The law usually requires the non-breaching party to mitigate (or try and limit) their damages. Back to Top


Specific Performance

Specific performance is a remedy that forces the breaching party to fulfill their obligations under the contract. This remedy is usually limited to instances where a monetary judgment is inadequate, as in the sale of land. Back to Top


Rescission

Rescission and Restitution is a remedy that lets the non-breaching party cancel the contract and have restitution paid. Back to Top


Reformation

Reformation is an equitable remedy that lets the parties rewrite the contract so that it reflects what they had really intended the contract to say from the beginning. Back to Top


When to Write a Contract

The truth is that for most simple transactions that occur in our lives, we do not need to have a formal written contract. I do not need to have a lawyer draft a ten page document each time I have a babysitter come over on a Friday night. The real reason we don’t need a formal written contract is that if we do not agree, the amount at issue is so minimal that we will be able to resolve the dispute without the need of the courts.

Some issues are big enough that a written, complete contract is necessary to protect your interests. Sometimes the law requires it to be written if you ever want to enforce it in the future. Legal assistance can always be very helpful when the contract was written by the other side to a bargain and all they want is for you to sign it. Although the law provides many rights to people entering into contracts, that very same contract may contain provisions in which you do away with those rights. You may be signing away rights that you did not even know you had. A clear, complete contract can help two parties understand all of the different obligations they are to complete, as well as provide a cleaner avenue to enforcement of that contract, or to the remedies in case of a breach.

We have found in our practice of law that certain types of contracts tend to end up in litigation more often than others. We also find that certain contracts are sufficiently important because of the potential consequences of a breach, that having a complete and clearly drafted contract can make all the difference in enforcing your rights. Back to Top


Rental Contracts

Rental and lease agreements are some of the most common contracts that lead to some form of legal action. There are many landlords and tenants who do not understand their respective rights and obligations according to the law. Because the rights and requirements can vary dramatically from state to state, it’s important that the lease or rental agreement be written or reviewed by someone who understands the laws that will affect it. Landlords should be careful of generic form leases they find online. Tenants should understand that the contract they are signing may be taking away rights the law would otherwise give them. Back to Top


Property Contracts

Property purchases and sales require a complete and clear contract to protect your interests. Whether you are buying or selling, a contract can help ensure compliance with varied laws and provide protection in the event the deal falls through. Back to Top


Business Contracts

Business deals are another area that can benefit from the help of an experienced lawyer. Business deals are frequently much more complicated than either party had anticipated. Because business deals and liabilities can continue for many years, it’s important to ensure that all issues and aspects of the selling or buying of a business are anticipated and dealt with in the contract. Back to Top


Employment Contracts

Employment contracts are another area that often result in legal action. There are numerous laws and issues that need to be thought through and addressed before contracting to hire an individual. Employers may think their employee is at-will but may have in fact created a contractual relationship that changes how the employer can deal with that employee. A thorough and clear contract can aid both parties in knowing what their obligations and rights of employment are going to be. Back to Top


Consumer Contracts

Many of the day-to-day consumer contracts are usually simple and small enough that it is not worth the money or time to have a lawyer review it. For example, it does not make sense to pay an attorney hundreds of dollars to review a cell phone contract when the penalty of breaking the contract will be less than the cost to have the contract reviewed. However, these are the types of contracts where it is important to read the fine print because you will often have to abide by what it says and there is usually a reason it is in the fine print.

With a basic understanding of how a contract is formed and what remedies may be available if the contract is breached, you are in a better position to determine when the issue is simple enough to resolve on your own, and when you should think about retaining a lawyer who is knowledgeable in that area of law. Back to Top


Corporate Buy/Sell Agreements; Shareholder Agreements

Any corporation or other business entity having more than one shareholder or member should have a buy-sell agreement. The agreement should address what happens in the event of a shareholder’s death, or the transfer of a shareholder’s interest. Back to Top


Verbal Contracts

Verbal contracts are binding; however, all states require that some types of contracts be in writing to be enforceable, such as real estate contracts. Back to Top