Contracts Law Overview
You enter into contracts with some frequency. Sometimes, it means clicking on online terms of use for a new app. Other times, a contract is a lease, mortgage, sale of goods, or employment agreement. Even a disclaimer is a contract. They are often long, intimidating, and filled with legal jargon. However, the foundation of each contract is two or more parties making a legally enforceable promise.
Contracts are a part of everyday life, so it is essential to understand how contracts work. This article provides an overview of contracts and what happens when a party breaches a contract. Talk to a civil litigation contract lawyer for legal advice and to represent you in contract disputes.
What Makes a Contract?
An enforceable and valid contract should have the following elements:
- Meeting of the minds: Two or more parties come together to create a binding agreement or promise to each other
- Offer: One party proposes terms that they will be bound to
- Acceptance: The other party accepts the terms
- Consideration: Both parties give and receive something of value in return
All parties must be competent or have the legal capacity to enter into the agreement. Minors usually lack this capacity. However, some states allow minors to enter into contracts for bank accounts. The competence of adults with mental health issues depends on how the state tests capacity.
What Laws Govern Contracts?
Contract claims fall under civil law. This means you may file a lawsuit against the other party to correct wrongdoing and possibly recover damages. Contract lawsuits require “a preponderance of evidence” in civil court. This means you have to prove your case is more likely valid than not.
Generally, the state where you create the contract will be the jurisdiction where you can file any claims. State laws will apply. However, some contracts may have a “choice of law” provision that specifies the jurisdiction or state where you can file a lawsuit if a dispute arises. Since contract law varies by state, your outcome may differ depending on where you can bring your claim.
Many contracts also have dispute resolution clauses in the terms of the agreement. Civil cases or personal injury cases may go through alternative dispute resolution methods like arbitration or mediation.
Additionally, the type of obligation created in the contract dictates the kind of law that applies to a contract. When dealing with services or real estate, the governing law is common law developed through prior court decisions. Most states have adopted the Uniform Commercial Code when dealing with business contracts and the sale of goods.
Different Types of Contracts
There are several forms a contract may take, including:
- Express contract: You communicate express contracts by written or oral terms. A written contract generally provides the best protections. Most states require proof to demonstrate the creation of an oral contract and the terms of the contract.
- Implied contract: Since no promise has been explicitly said in words, implied contracts typically occur when two parties begin to act in a way that shows they intend to create an obligation to one another.
- Unilateral contract: A unilateral contract forms when one party accepts an offer by simply performing the requested task. For example, you have a unilateral contract when you pay someone to wash your car and pay them after they finish.
- Bilateral contract: A bilateral contract involves one party promising to perform an action in response to another person’s action. This is like when you order a meal at a restaurant. When you sit at the table and place an order from the menu, the restaurant will cook your food, expecting you to pay after your meal.
- Option contract: With an option contract, you don’t have to sign on the dotted line immediately. This type of contract allows you to enter into the contract later and may have a cut-off date by which you need to make your decision.
- Adhesion contract: An adhesion contract, sometimes called a “boilerplate contract,” typically appears when registering for a service, signing a lease, or purchasing online through a pre-structured form. The contract is already drawn up, leaving you to either agree to the terms or walk away empty-handed.
When Will a Contract Not Be Enforced?
Usually, a contract is enforceable as long as it is reasonable. Some instances or legal defenses may be available to you to prevent its enforcement.
- Unconscionability: The contract is unfair and heavily favors the other party
- Duress: You are forced to agree to a contract because of a severe threat and have no reasonable alternative
- Undue influence: Someone pressures you into the contract because of your relationship with the other party
- Misrepresentation: The other party made a false statement or concealed a fact
- Mistake: Either party made a mistake about the basis of the contract when you made the agreement
- Lack of capacity: One party is a minor or an adult without the mental capacity
- Illegality: The contract involves illegal or immoral conduct
- Statute of limitations: The contract dispute happened too long ago
- Frustration of purpose: An unforeseen event occurs that undermines the reason for entering into a contract
What Happens With a Breach of Contract?
A breach of contract claim may arise if a party goes back on their promise, fails to perform, violates a term, or interferes with the performance of the contract. If you and the other party cannot fix the issue, you may consider filing a breach of contract lawsuit. There are three main remedies available:
- Specific performance forces the other party to fulfill their promise to you
- You recover monetary compensation for your injury and financial losses
- The contract is canceled and you can sue for restitution if you upheld your contractual obligations
Have a Lawyer Review Your Contract
Contracts are a basic tenet of living in the world. But they are also complex. Not understanding the terms of a contract could mean giving away your rights or losing money. Contact a local and experienced lawyer if you need help reviewing, breaking, enforcing, or creating a contract before you sign on the dotted line.