1. The terms “agreement” and “contract” mean the same thing. A memo of understanding, accepted proposal and purchase order are all examples of contracts.
2. How a contract is formed. A contract is formed when there is an offer by one party which is accepted by another party and there is a mutual exchange of value (cash, services, promises) between two or more competent parties.
3. Counteroffers. A counteroffer automatically rejects a prior offer. If you make a counteroffer and the other party rejects it, you cannot revive a prior offer unless the other party allows it.
4. Some contracts must be in writing to be valid and enforceable. Examples include real estate listing agreements, real estate purchase and sale agreements, contracts between merchants for the sale of goods valued at greater than $500, contracts where the performance cannot be performed within one year, and prenuptial agreements.
5. Contracts do not need to be in writing unless required by law. But it’s highly recommended that you have a written contract when
- 1) you are the one being paid for your products or services,
- 2) the scope of work is detailed or complex,
- 3) contract performance will be on a very tight time schedule, and 4) you want to be able to enforce the contract if the other party fails to perform.
6. Leases. A lease is a type of contract. You can’t just walk away from a lease without compensating the other party.
7. Oral contracts are extremely difficult to enforce. Oral contracts are contracts where there is capacity, offer, acceptance, and consideration but no written contract or memorandum of the parties’ agreement.
8. Implied Contracts. To prevent injustice, courts have developed case law creating implied contracts.
9. Implied-in-Fact Contracts. A court will find that an implied-in-fact contract exists where the parties have demonstrated by their conduct an intent to be bound.
10. Implied-in-Law Contracts. A court will find an implied-in-law contract exists to prevent unjust enrichment where one party confers a benefit upon another party, who is aware of and retains the benefit without paying for it.
11. Contract Disputes Can Be Resolved Without Litigation. There are 4 ways to resolve disputes without going to court (called Alternative Dispute Resolution or ADR):
- Negotiation by the parties directly or through their attorneys
- Collaboration. This is a formal process where the parties and their attorneys commit to resolving the dispute together, which enables the parties to retain control of the outcome. Each party has the benefit of legal counsel and the parties and counsel (the “collaborative team”) may seek the advise of other professionals, such as engineers, accountants and appraisers, to help the parties resolve the dispute.
- Mediation. In this model, the parties and their counsel seek the help of a mediator to resolve the dispute. The parties still retain control over the process, but less so than with collaboration.
- Binding Arbitration. The parties and their counsel submit the dispute to an arbitrator, who makes a decision as a judge would. The process is streamlined and less formal (and thus less costly) than litigation. The parties have less control over the outcome than they would with the other methods.
The benefits of ADR are significant savings in legal fees, saving the turmoil and emotional energy of litigation, and keeping the dispute and confidential business or personal information out of public records.
12. You may be “right” but that doesn’t mean you will win in court. Although “justice” is the goal of the legal system, in reality it’s rough justice at best. The judge only gets a snapshot of your case before having to make a decision. And the rules of evidence may disallow some of your evidence. Going to court is expensive, time consuming, and emotionally and financially draining. The legal system is designed to be a last resort when parties cannot resolve a dispute by any other means. Litigation is a form of war: everyone loses something, everyone spends a lot of money, and no one is really happy with the outcome.
13. Damages. When one party fails to perform a material (important) contract obligation (called a breach of contract), the other party is entitled to seek damages. The measure of damages will be an amount sufficient to put the non-breaching party in as good a position as if the contract had not been breached. A party may sometimes be awarded consequential damages and incidental damages. Consequential damages are foreseeable damages that directly result from a breach of contract. Incidental damages are related to a breach of contract, but do not directly result from the breach.
14. Noncompetition Agreements. These agreements with employees will only be upheld by a court if they are reasonable in geographic area and duration.
15. Oral Amendments to Written Contracts. Oral agreements or amendments to written contracts are rarely enforceable. They are extremely difficult to prove.
16. Business owners are held to a higher standard than consumers. When it comes to contracts, business people are presumed to be more savvy than consumers. Where a consumer might be able to get away with saying he/she didn’t understand the contract, a business owner will not.
17. Contracts are construed against the drafter. Where a contract is unclear, the interpretation of the party who did not draft the contract will control.
18. Nondisclosure Agreements. These will be enforced if they are clearly written.
19. Loan documents are a form of contract. A promissory note is a promise to pay.
20. Read all contracts carefully. If you don’t understand a provision, seek the advice of an attorney. Do not rely of what the other party says the contract means. A contract should say what it means. If it doesn’t, the language should be rewritten to clear up any confusion. A contract should not need “interpretation.”
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