Contracts are agreements that create obligations which are enforceable in a court of law. Contracts may be used to exchange products or services.
Depending on the context and the terms of the contract, it may be simple or complex. If an individual is entering into a contract which involves a substantial sum of money, it may be in their best interests to retain the services of an attorney to protect their rights.
What are the Elements of a Contract?
If a dispute arises between parties to a contract, a court must first determine whether or not a contract existed. There are 4 elements to a valid contract, including:
- Offer: One or both of the parties makes a promise to do or refrain from doing some specified action;
- Consideration: Consideration is a word representing that something of value was exchanged, for example, money or services;
- Acceptance: Acceptance of the terms of a contract may be shown through:
- deeds; or
- performance; and
- Intent: The parties must have intended to create a legal relationship and must understand at the time of contracting that the agreement is enforceable in a court of law.
It is important to note that the Uniform Commercial Code (UCC) governs contracts for the sale of goods between one or more merchants.
What are the Types of Contracts?
There are a variety of different types of contracts, including:
- Bilateral contracts: Bilateral contracts arise when there is a mutual exchange of promises;
- An example of a bilateral contract would be performing the act of mowing an individual’s lawn in exchange for money for performing the act;
- Unilateral contracts: Unilateral contracts arise when an offer requests performance instead of an exchange of promises. These are typically only complete and formed when performance is complete;
- An example of a unilateral contract is a reward flier. The contract is formed when the item requested on the reward flier is returned. Once returned, the money will be provided for performance;
- Express contracts: Express contracts are contracts that are formed by explicit language. An express contract will recite the agreement and its terms in entirety and with specificity; and
- Implied contracts: Implied contracts are formed based on the behavior of the parties. Where they may not be clear contracts, one will be found where the behavior shows a clear intent by the parties;
- An example of an implied contract would be when an individual goes to a restaurant and orders food. It is implied that the customer will pay for the food.
What is the Statute of Frauds?
Generally, contracts are not required to be in writing, although it is advisable. The Statute of Frauds, however, requires that certain types of contracts be in writing in order to be enforceable in a court of law.
There are several types of contracts that are required to be in writing pursuant to the Statute of Frauds, including:
- A contract in consideration of marriage, including a prenuptial agreement;
- Contracts that cannot be performed within one year. However, contracts of indefinite duration do not fall under the Statute of Frauds and, therefore, do not have to be in writing to be found enforceable;
- Contracts involving the transfer of interest in real property or land;
- Contracts by an executor of a will to pay a debt of the testator with their own money;
- Contracts for the sale of goods totaling $500 or more in value; and
- Contracts for which one party becomes a surety for another party’s debt or other obligation.
It is important to note that the Statute of Frauds may be used as an affirmative defense to a breach of contract claim. If a contract is one that the Statute of Frauds requires to be in writing and it was not, the defendant may argue that there was no contract to breach.
What is a Breach of Contract?
A breach of contract is a cause of action that is brought in a court of law. This type of claim may arise when one or more of the parties to a contract do not honor the agreement.
A breach of contract may occur due to:
- Interference with the other party’s performance; or
- A party failing to perform according to the terms of the contract.
There are two main categories of breach of contract, minor breach and material breach. Minor breaches occur where substantial performance of the contract has occurred.
In other words, a minor breach occurs when performance occurs but it may be slightly different than what was specified in the contract. An example of a minor breach is when a contractor is hired to install a specific brand of plumbing pipe but, instead, installs a different brand of equal value.
A court would not require the plumber to remove the installed pipe because it would be economic waste. However, a homeowner may be able to recover monetary compensation for the actual damages, if any they incurred due to the wrong product being installed.
Material breach occurs when one of the parties fails to perform. The non-breaching party may sue for the damages resulting from the breach.
For example, if the plumber discussed above installed plastic pipes instead of heavy-duty iron pipes, the homeowner may sue to recover for the cost of correcting that breach. This would likely include the cost of removing the plastic pipes and installing the proper pipes.
What are the Remedies for Breach of Contract?
When a plaintiff is seeking a remedy for a breach of contract, the non-breaching party can sue for damages or for equitable relief. Damages are monetary compensation for the breach of contract.
There are several different categories of damages which a party may seek, including:
- Expectation damages: These damages are those which put the individual in a position they would have been in had the contract been performed;
- Consequential damages: Consequential damages are those losses stemming directly from the breach;
- Incidental damages: Incidental damages are those which are reasonably foreseeable as a result of the breach; and
- Liquidated damages: Some contracts provide for a liquidated damages clause. In the event of a breach, it may be difficult to determine expectation damages, therefore liquidated damages represent the amount a non-breaching party can recover from a breach;
- It is important for a damages clause to be reasonable. If the amount is egregious, it may be considered to be a penalty and the court will not honor the liquidation cause.
An equitable remedy is performed in situations where monetary compensation is not sufficient to adequately compensate a non-breaching party for their loss. Equitable remedies may include:
- Specific performance: Specific performance is an order by the court requiring a party to perform under the terms of the contract;
- Rescission: With rescission, the court will cancel the contract and both sides are excused from performance under the contract; and
- Reformation: Reformation is a court action changing the terms of the contract to represent the true intent of the parties involved.
It is important to note that a party may not seek both monetary damages and equitable relief.
Do I Need an Attorney?
If you are being sued for a breach of contract or you are suing another party for a breach, it may be helpful to have the assistance of a contract lawyer. Your attorney can review your case, advise you regarding what remedies may be available, and represent you in court.