The Ultimate Guide to Contract Law

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The Ultimate Guide to Contract Law

A contract is an agreement creating obligations enforceable in a court of law. A contract can be used to exchange products or services. Depending on the terms and the context, a contract can be simple or complex.

If you are interring a contract involving substantial sums of money, it may be in your best interest to retain the services of a business attorney to protect your rights and prevent any disputes regarding the contract.

Contract Formation: Elements of a Contract

Where a dispute exists between parties over an alleged contract, the court must first establish that a contract exists. Four essential elements make up a valid contract. The complaining party must prove that these elements are present.

  1. Offer. One or both of the parties made a promise to do or refrain from doing some specified action in the future.
  2. Consideration. Consideration is a word representing that something of value was exchanged in exchange for something else of value. An example of this would be money for services. Consideration is considered to be the value that induces the party to enter into the contract.
  3. Acceptance. Unambiguous acceptance of the terms of the contract shown through words, deeds, or performance. If the contract specifies the exact manner of acceptance, acceptance must typically mirror the terms of the offer.
  4. Intent. Perhaps the most important element of a contract is that the parties contracting had the intent to contract. The parties must intent to create legal relations and must understand at the time of contracting that the agreement is enforceable in a court of law.

Note: If the contract is for the sale of goods, between one or two merchants, the UCC is the governing law. The UCC provides that acceptance does not have to mirror the terms of the offer for a valid contract to be found unless:

What Laws Govern Contracts?

In contracts, there are two different governing laws that determine how the court will govern the interpretation of the contract and enforcement of the terms of the contract.

The Uniform Commercial Code or UCC controls contracts that are primarily for the sale of goods. The UCC is a standardized collection of guidelines that govern the law of commercial transactions. Most states have adopted the UCC in whole or in part.

Common law governs the majority of contracts. The state’s common law is an evolving set of laws, mostly judge-made, that come from court decisions through the years.

Types of Contracts

There are a variety of different types of contracts, including:

What Is the Statute of Frauds?

In general, there is no requirement that a contract be in writing. However, the Statute of Frauds requires that certain types of contracts be in writing in order to be enforceable in a court of law. In addition to the writing requirement, the contract must provide sufficient content to evidence that a contract exists. There are several types of contracts that must be in writing as they fall within the Statute of Frauds requirements:

The Statute of Frauds is not only a requirement for the above mentioned contracts, but can also be used as an affirmative defense in a lawsuit for breach of contract. If a party is being sued for breach of contract, and the contract falls within the Statute of Frauds but is not in writing, the Respondent in that lawsuit may argue that there was no contract to breach.

Exceptions to the Statute of Frauds

There are certain exceptions to the Statute of Frauds. These include the following situations:

Breach of Contract

Breach of contract is a cause of action brought in a court of law. A breach of contract occurs where one or more of the parties to a contract does not honor an agreement between the parties to a contract. A breach can occur through non-performance, interference with the other party’s performance, or failure to perform according to the terms of the contract.

Under common law, there are two types of breaches to a contract - material breach and a minor breach.

Minor Breach. A minor breach occurs where there has been substantial performance of the contract. The non-breaching party cannot sue for specific performance, but can only sue for actual damages. An example of a minor breach would be where a contractor is hired to install a certain brand of plumbing pipe, but installs another brand of plumbing pipe of equal value. The court will not require the contractor to remove the existing pipe, even if incorrect, as the value is equal. This would amount to economic waste. Economic waste is tearing down or destroying something of value. However, the homeowner can recover actual damages, if any.

Material Breach. A material breach occurs where a party fails to perform. The non-breaching party can then either sue for specific performance or for damages resulting from the breach. For example, if the contractor above had installed plastic pipes instead of heavy-duty iron pipes, the homeowner could sue to recover the cost for correcting the breach. This would amount to the cost of removing the plastic pipes and installation of the iron pipes.

Under the UCC, a contract for the sale of goods may be breached if a seller provides the buyer with the wrong items. Under Article 2 of the UCC, there are a myriad of situations of how merchants may deal with a possible breach of contract situation. These include:

Anticipatory Repudiation. Under both common law and the UCC, anticipatory repudiation occurs where there is a clear and unequivocal indication that one party will not perform under the terms of the contract. The non-breaching party has the option to either treat the contract as breached, terminate the contract and sue for any damages, or continue performance under the terms of the contract.

Remedies for Breach of Contract

When seeking a remedy for a breach of contract, the non-breaching party may sue for damages or equitable relief by the court.

Damages. Damages are monetary relief for the breach of contract. There are different types of damages that a party make seek. These include:

Equitable Remedies. Equitable remedies are preferred in situations where monetary relief is not sufficient to adequately compensate the non-breaching party for their loss.

It is important to note that a party may not seek both damages and equitable relief.

Affirmative Defenses to Breach of Contracts

If a party is sued for breach of contract, they may defend against the claim using one or more of the following affirmative defenses. Affirmative defenses are claims that protect against the breach of contract claim by rendering it moot. The following are possible affirmative defenses that may be raised in a breach of contract claim:

Do I Need an Attorney?

If you have been sued for a breach of contract, or are suing one for a breach, an experienced business attorney can help defend your rights. As there is likely much at stake, the legal counsel of an experienced attorney can help you to recover your losses.

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Last Modified: 03-30-2015 03:38 PM PDT

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