In a contract, the parties must exchange something of value. They must bargain in this exchange for the contract to be valued. “Something of value” can either be goods or services.
For instance, one party may offer a $30 gift certificate for the other’s promise to paint a wall on their house. Note that the parties must bargain for the exchange; they must agree upon the terms before the service or goods are exchanged.
Lastly, consideration can also include a promise to perform services or provide a particular property item. It can also commit not to do something.
Why Is Consideration Important in a Contract?
Without contract consideration, the contract is generally not deemed to be valid. The exchange of consideration makes the transaction a contract and not a gift. If one party simply gives an item or service to the other, the courts view this as a gift.
Note that the consideration delivered must be considered “adequate” for the contract to be legal. For example, if one party is providing services worth $2,000, the other party must provide consideration that is equal to or about equal to $2,000. Consideration for past services or actions will not be considered; consideration for fake promises that can never be performed (“illusory promises”) is not valid in contract formation.
What If I Have a Dispute Over Consideration?
Consideration can occasionally be the primary source of contract disputes. For example, one party may contend that the consideration provided is not enough compared to their contribution to a contract. If the consideration provided is not considered to be “adequate,” it doesn’t make the contract automatically valid.
Depending on the facts of the case and the judge’s discretion, the contract may be considered unenforceable in a court. This is particularly true for fake consideration, which has no legal value or is considered “nominal” (i.e., too low in value to be classified as consideration).
What Is a Contract Dispute?
A contract is a legally binding agreement between two parties that documents the duties and obligations of each party. Contracts may be oral or in writing, although most contracts must be in writing to be legally enforceable. Some examples of this include marriage contracts and contracts involving money greater than $500. Oral contracts are more difficult to enforce and should be avoided whenever possible.
For a contract to be enforceable, specific requirements must be met, such as each party exchanging something of value. Additionally, all parties involved must have a concrete understanding of every term included in the contract. They must be in mutual agreement on those terms. A contract dispute arises when any party involved in the contract disagrees with any of the terms or definitions contained within the contract.
Generally, contract disputes may involve a breach of contract in contract law. Breach of contract refers to an agreement not being kept because one party failed to fulfill their obligation according to the precise terms of the contract.
Contract disputes can generally be categorized as one of two main types of breach:
- Material Breach: A material breach occurs when the contract is completely and irreparably broken. The breach is so deep that the rest of the contract is useless, and no other terms may be fulfilled. A material breach is sometimes referred to as a total breach. The non-breaching party does not need to fulfill their contractual obligations, and they may sue the breaching party for any damages caused by the breach; and
- Minor Breach: A minor breach of contract is sometimes referred to as a partial breach and transpires when the breach does not affect the whole purpose of the contract. Both parties are still required to carry out their contractual obligations. However, the non-breaching party may still be entitled to sue the breaching party for damages.
An illustration of a material breach would be when one party buys a house, and the buyer completes all necessary steps to obtain the home. The seller suddenly decides not to sell the house or refuses to hand over the deed and keys to the house. This would be deemed a material breach of contract because the breach renders the contract completely useless.
An example of a minor breach will be if a homeowner contracts an electrician to install a new lighting system with a specific wiring brand. The electrician installs the lighting but with a different wiring brand than what was requested and agreed upon. This is a minor breach because the goal of the contract was still accomplished, but not according to specifics.
How Can You Avoid a Contract Dispute?
The soundest way to bypass a contract dispute is to confirm that all parties are in agreement before signing the contract. All parties involved should clearly understand and agree to all terms included in the contract. Any language used in the contract should clearly state the duties of all parties involved, and any technical words or trade terms should be defined and clarified.
Vague or ambiguous terms, or language with multiple meanings, could lead to a dispute later on.
Another way to avoid contract disputes is to continually document any negotiations in writing. Negotiations should be documented at each step; this could include keeping track of the history of offers, the amount of product, prices, and other essential terms. Doing so can minimize later disputes regarding forgotten contract terms.
One of the soundest ways to avoid a contract dispute is to ensure that the contract is in writing. This supplies physical proof of the contract’s terms and clarifies and details the overall objective of the contract. Knowing the purpose before entering into any agreement is crucial to avoid disputes later.
What Is the Contract Dispute Act?
The Contract Dispute Act governs claims involving U.S. Federal Government contracts and defines various procedures that should be followed if the federal government has any claims against an independent contractor. An example of this will be if the federal government claims that the contractor committed fraud. Under the Act, federal claims against the contractor must be submitted for particular review conducted by the U.S. Contracting Office.
Claims for contract disputes must be submitted in writing. Claims submitted by contractors above $100,000 must be made in good faith, supported by accurate data, and must represent a reasonable estimation of the amount that the government owes.
What Remedies are Available for a Contract Dispute?
In general, there are two primary remedies for contract disputes:
- Legal Remedies: This could include compensatory damages, restitution, and liquidated damages. Some contracts contain a liquidated damages clause, which determines (in advance) the amount of damages to be paid should one party breach the contract. The parties agree upon a damages figure during contract negotiations; and
- Equitable Remedies: Equitable remedies refer to legal remedies that allow the non-breaching party to recover monetary damages and could include actions that the court rules to resolve the dispute. This generally means the parties must take specific steps to correct errors or perform their contractual duties.
Do I Need a Lawyer for Help with Consideration in a Contract?
Contract issues often involve very complex legal and theoretical principles. You may need to hire a contract attorney if you need help with any contract dispute. Your attorney can help you review a document, edit terms, or file a claim in court.
A qualified contract lawyer near you will be able to explain how the laws in your jurisdiction might affect your claim. Contract disputes are often remedied through a lawsuit in which the court reviews the agreement to come up with a suitable remedy, such as a damages award.