A contract may be defined as an agreement between two parties, creating legal obligations for each side to perform certain acts. Once the agreement is formalized, each party becomes legally bound to satisfy their contractual obligations, such as making a payment or providing goods.
For any contract to be enforceable under the law, each party needs to exchange something of value known as “consideration” (in most circumstances, this is payment for goods or services by the buyer and the provision of the goods or services by the seller). Consideration in a contract helps ensure a bargain is involved, not just a mere gift being given.
Contracts provide the parties involved with miscellaneous contract rights. When forming a contract, the sides will usually negotiate for various terms and provisions in their favor. For example, they may negotiate the quality of materials used, delivery date, payment amounts, and other contractual rights. Offer and acceptance of a contract are also noteworthy matters.
Creating a contract can often be problematic, even for seemingly insignificant transactions.
Standard clauses in a contract may include:
- Payment amounts;
- When payment must be delivered;
- The kinds of goods or services being sold;
- When the goods or services must be supplied or performed;
- Whether the agreement can be assigned to another party
- Remedies in the event of a breach
Oral contracts can be legally binding, depending on how they were created and the subject matter of the agreement. As a general rule of thumb, it’s better to formalize a contract in writing to be referenced in the future. Oral contract requirements may differ from state to state and according to the subject matter of the agreement.
Each party has a general duty to read a contract to understand its terms and duties. When it comes to negotiating, developing, drafting, and reviewing a contract, the guidance and services of a contract attorney can be beneficial.
How Can a Contract Be Broken?
After signing and agreeing to fulfill their contractual duties, contracts may be broken or “breached” by either party. This can happen in many ways, such as failing to meet the terms or violating them. A breach of contract or contract violation may need legal action to make the non-breaching party whole if the breach has caused them any losses.
Some common ways a breach of contract can occur may include:
- Non-payment for goods or services supplied;
- Failure to supply goods or services;
- Delivering services or goods that are of substandard quality;
- Providing the wrong goods or services;
- Not paying the full amount for goods or services;
- Paying the wrong party or delivering to the wrong party;
- Various other breaches of duties.
A breach of contract can either be minor or material. A minor breach is relatively insignificant and lets the rest of the contract be completed. In contrast, material breaches are more severe and make it challenging or impossible to satisfy the contract terms.
Some other problems involved in a breach of contract case may include:
- Lack of consideration in the contract
- Conflicts over the length of the contract offer period
- A mistake of fact in the contract performance (for example, if a business delivers dinner “plates” as opposed to brake “plates”)
- No substantial performance of the contract terms;
- Problems related to contract interpretation;
- One of the parties was minor or could not form a contract agreement legally;
- Breaches caused by the existence of fraud concerning the contract;
- Breaches related to the assigning of duties in a contract (some duties cannot be assigned to other parties to be performed);
- Instances where a contract term is vague, ambiguous, or has multiple meanings;
- The contract was unconscionable (i.e., so one-sided that it would be deemed unfair to one party); it may also be used as a defense to breach of contract;
- Non-disclosure violations in a contract.
What Are Some Common Contract Remedies?
Resolving contract conflicts is among the most complex areas of law. It depends on many factors, including the type of contract involved, interpretation of the contract, and the type of remedy that the non-breaching party is seeking.
Equitable remedies for breach of contract may include:
- Contract Modification: In some circumstances, courts may permit a contract modification, such as when a term needs to be extended. This may help save the parties time and resources that they may have already expended;
- Contract Reformation: In some circumstances, courts may permit the parties to “reform” or change the contract. Reformation of a contract may be available in cases involving misrepresentation or mistaken terms in the contract;
- Contract Rescission: This is where the court cancels a contract. This must be done entirely (i.e., they can’t cancel only part of the agreement);
- Contract Revocation (Revoking a Contract): This is where a contract is voided, usually due to some mutual mistake in interpreting the contract;
- Contract Termination: For example, when there is an impossibility of performance present (one party cannot perform their part of the contract);
- Voiding a Contract: This can happen in cases where a misrepresentation was used or one party was a minor.
What Is a Destination Contract?
A destination contract can be used for a transaction involving the sale of goods. The transactions are overseen by the Uniform Commercial Code (UCC). The seller promises to deliver specified goods to the buyer’s destination in a destination contract. The seller must confirm that the purchased goods get to the buyer’s destination.
Who Is Responsible If the Goods Are Lost or Damaged?
The risk of loss is on the seller until they satisfy their delivery obligations under the destination contract. If the goods are destroyed or damaged while in delivery, the seller risks loss.
After a common carrier has delivered the goods at the buyer’s destination, the seller is no longer liable.
Destination Contract vs. Shipment Contract: What’s the Difference?
Destination contracts specify the buyer’s destination as the point where the seller’s obligation to deliver is complete. At that point, all risk of loss passes to the buyer.
Alternatively, under a shipment contract, the seller’s duty is done when he passes the goods to the common carrier for delivery. If the goods are damaged during shipment, the seller is not held responsible in this situation.
How to Spot a Destination Contract
Miscellaneous contract terms help distinguish destination contracts. The following terms will typically point to a destination contract:
1) FOB (Free on Board) – when a delivery term in the contract states “F.O.B San Francisco” and the buyer or its distribution or logistic channel is located in San Francisco, the FOB clause points to a destination contract.
The seller may be obligated to:
- Transport goods to the buyer’s destination
- Transport at the seller’s own expense
- Tender the goods at the buyer’s destination
- Assume the risk of loss during transportation
2) Ex Ship – This means “from the carrying vessel.” In other words, the seller may be obligated to:
- Pay freight bills
- Ensure the goods leave the ship at the destination
- Ensure the goods get unloaded
3) No arrival, no sale – This clause gives the seller more leeway. The seller doesn’t assume liability unless the goods are damaged due to the seller’s actions.
Seeking Legal Help
Transactions involving the sale of goods can become complicated. A qualified contract lawyer can help you negotiate, draft, and review your destination contract(s). A lawyer can also help you obtain damages for the breach of a sales contract.