What is a Contract?
A contract may be defined as an agreement between two parties, which creates legal obligations for each side to perform certain acts. Once the agreement is formalized, each party then becomes legally bound to fulfill their contractual obligations, such as making a payment or providing goods.
In order for any contract to be enforceable under the law, each party needs to exchange something of value known as “consideration” (in most cases, this is payment for goods or services by the buyer, and then provision of the goods or services by the seller). Consideration in a contract helps ensure that there is a bargain involved, not not just a mere gift being given.
Contracts provide the parties involved with various contract rights. When forming a contract, the sides will usually negotiate for various terms and provisions in their favor. For instance, they may negotiate regarding the quality of materials used, delivery date, payment amounts, and other contractual rights. Offer and acceptance of a contract are also important matters.
Forming a contract can often be complex, even for seemingly minor transactions. Common clauses in a contract may include:
- Payment amounts;
- When payment must be delivered;
- The types of goods or services being sold;
- When the goods or services must be delivered or performed;
- Whether the contract can be assigned to another party
- Remedies in the event of a breach
Oral contracts can be legally binding contracts as well, depending on the way they were formed, and the subject matter of the contract. However, as a general rule of thumb, it’s always better to formalize a contract into writing so that it can be referenced in the future. Oral contract requirements may vary from state to state and according to the subject matter of the agreement.
Each party has a general duty to read a contract so they understand its terms and their duties. When it comes to negotiating, forming, drafting, and reviewing a contract, the guidance and services of a contract lawyer can be very helpful.
How Can a Contract be Broken?
Contracts may be broken or “breached” by either party after they have signed and agreed to fulfill their contract duties. This can occur in many ways, such as failing to meet the terms or violating them in any way. A breach of contract or contract violation may require 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 delivered;
- Failure to deliver goods or services;
- Delivering services or goods that are of substandard quality;
- Delivering the wrong goods or services;
- Not paying the entire 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 one that is relatively insignificant and allows the rest of the contract to be completed. In contrast, material breaches are more serious and make it difficult or impossible to complete the contract terms.
Some other issues involved in a breach of contract situation may include:
- Lack of consideration in the contract
- Disputes over the length of the contract offer time period
- A mistake of fact in the contract performance (for instance, if a company delivers dinner “plates” as opposed to brake “plates”)
- No substantial performance of the contract terms;
- Issues related to contract interpretation;
- One of the parties was minor or did not have the capacity to legally form a contract agreement;
- Breaches caused by the existence of fraud in relation to 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 considered unfair to one party); may also be used as a defense to breach of contract;
- Non-disclosure violations in a contract.
There may be various other ways to breach a contract. These may depend on several factors, including state contract laws, as well as the exact terms contained in an agreement. Since each party is free to negotiate terms in the contract, breaches can also occur in different ways.
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.
When determining contract remedies, courts will examine various forms of evidence, including witness testimony, payment and delivery receipts, the history of dealings between the parties, and the contract itself.
With regard to contract remedies, there are two basic divisions: equitable remedies and monetary damages. Equitable remedies require the court to take action, such as cancelling a contract or allowing the parties to rewrite it. Monetary damages provide the non-breaching party with financial payment for losses they received.
Equitable remedies for breach of contract may include:
- Contract Modification: In some cases, courts may allow a modification of the contract, 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 cases, courts may allow 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 in its entirety (i.e., they can’t cancel only part of the agreement). This is available in various situations, including those involving a lack of consideration, issues with the formation of the contract, and in cases where the parties agree to it;
- Contract Revocation (Revoking a Contract): This is where a contract is voided, usually due to some sort of mutual mistake in interpreting the contract;
- Contract Termination: For instance, when there is an impossibility of performance present (one party cannot perform their part of the contract; for instance, if an injury renders an athlete unable to play a game they contracted to participate in).
- Voiding a Contract: This can happen in cases where misrepresentation was used, or where one party was a minor.
Damages in a contract case may include:
- Compensatory Damages: These are general damages intended to compensate the non-breaching party for their losses. For instance, if a party paid for goods, but the goods were never delivered, the court might issue compensatory damages that are worth the value of the goods paid for;
- Foreseeable Contract Damages: These are damages related to losses that “arise naturally” from the breach of contract;
- Nominal Damages: This is a less common type of damages award issued in cases where wrongdoing has occurred, but no real financial losses have resulted. Often the amount of these damages is $1 or $2. However, they are important because they show that the plaintiff had a right to file the lawsuit, and that the defendant was in the wrong;
- Punitive Damages: These damages punish the breaching party for conduct that is intentional or particularly egregious or unacceptable. States may limit the amount of punitive damages, and they aren’t available in every case;
- Special Damages: These are damages that don’t necessarily “arise naturally” from the breach, such as when a party claims business losses.
There may be some overlap between contract and tort law remedies, especially in cases involving fraud or misrepresentation. Damages are often calculated according to the fair market value of the loss at the time of the breach (though this may vary).
Are There Defenses to Breaking a Contract?
As with any legal violation, there may be some defenses to breaking or breaching a contract. A party that has breached a contract may provide some justification as to why they breached the agreement.
These may include defenses such as:
- The contract was abusive or illegal;
- The contract was fraudulent, or the other party engaged in fraud during the contract formation and negotiation stage;
- One party failed to exercise good faith and fair dealing;
- There was a waiver in place that affected the parties’ contractual obligations;
- The contract did not meet the contract writing requirement (for instance, contracts for the sale of land must be in writing);
- The defense of laches (basically, the other parted waited too long to file a lawsuit);
- Existence of coercion during the time of contract formation (for instance, if one party uses a threat of harm or even economic pressure to get the other party to agree to a specific term or sign the contract).
Contract defenses may sometimes depend on whether the non-breaching party is seeking equitable remedies or monetary damages. Equitable defenses for a breach of contract may differ compared to the defenses available when the person is seeking damages.
Do You Need a Lawyer’s Help for an Issue with a Contract?
Contract issues can be very complex. From the creation to the signing and enforcement of a contract, there are many requirements that need to be met. Various legal repercussions can be faced if a contract is found to be void, unenforceable, or unconscionable.
It may be in your best interests to hire a contract lawyer in your area if you need help at any stage of a contract situation. Your attorney can help with negotiating, drafting, and reviewing a contract. They can also represent you in court if you need to file a lawsuit for breach of contract.