As anyone who owns a business knows – contracts are an indispensable tool to get things done and protect your business interests. However, if you don’t know anything about the laws that govern contracts, you may be doing more harm than good when you put pen to paper. Let’s talk through some of the basics of contracts and the law to make sure you have a good understanding of what’s at stake.
What Is a Contract?
This is basically a legally-enforceable agreement between parties (two or more) that obligates both parties to fulfill particular things as specified within the contract. By party, this can mean a person, country, company, corporation, etc. What you want to keep in mind is that two things are always implied when the word contract is used:
That there is an agreement made (something for something)
The agreement is legally enforceable
What Laws Pertain to Contracts?
One thing about contracts is that the laws that govern them are determined by the state where the agreement between the parties was made. There may actually be a couple of types of state laws that govern the contract as well – depending on what type it is (e.g. property lease, sale of goods). These two types of law are:
The Uniform Commercial Code or UCC: These laws govern contracts used for the sale of goods. The UCC is a standardized set of guidelines that oversee commercial transactions. While the code is not law itself, most states have adopted all or part of the code as law.
The Common Law: On all other business contracts, common law is what governs them. This includes all contracts like employment contracts, leases, etc. Each state has their own common law made from court decisions within the state over the years.
How is a Contract Created?
Any time an offer is made and accepted after a sufficient amount of “consideration,” a contract is legally valid. Let’s examine what these terms mean in the context of contracts:
An Offer: the terms of this offer must be clear and certain, and the party to whom such an offer is made must reasonably expect the offering party capable of the offer.
Acceptance: This is a clear expression from the party receiving the offer that they accept its terms and agree to it.
Consideration: There must be some gained and something obligated for all parties involved for the contract to hold. There must be an exchange of some kind of value.
What Happens when a Contract is “Breached?”
Anytime a dispute arises over a contract, one party may feel another party is failing to adhere to the terms of the contract they are obligated to adhere to. This is considered a breach and can result in legal action by the non-breaching party in an attempt to remedy the situation, which can happen in a number of different ways depending on the type of contract and breach.
How Are Contracts Enforceable Under the Law?
In the event that there is a breach of contract, the most common way to attempt to remedy the situation is to use a lawsuit through the court system. On breaches that result in losses under $7,500, this can be done in small claims court. However, there are other options for dispute resolution before turning to out and out litigation. These alternatives are mediation and arbitration.
Still Have Questions?
There’s a lot to keep in mind with contracts and your state’s common law. If you have any questions not covered here, be sure to give the Law Offices of Yoel Molina a call. We’re standing by and ready to help with the knowledge, experience, and dedication your small business deserves!
We’d all prefer it if everything in business was ideal. Yes, if every time you entered into a business agreement everything proceeded as both parties intended, life would be great. But in reality, that’s not how life or business works. Things go wrong. There are delays, finances come up short, things out of anybody’s control occur and prevent all kinds of plans from moving forward. Savvy business owners understand this comes with the territory of working with other people and prepare for it by understanding their legal options when a less-than-ideal situation causes the breach of a business contract to occur. Let’s take a few minutes to look at a few of those options now, starting with understanding what a breach of contract actually is.
How a Breach of Contract Occurs
To put it in very simple terms, a business contract is an agreement between two parties to “fulfill” specific obligations. The way the law sees it is this: if one of the parties who signed a contract fails to fulfill the obligations they agreed to, a breach occurs. Now the specifics of this failure depend on the contract itself, but typically it involves things like failing to perform on time, no performing in accordance with agreed terms, or simply failing to perform at all. When it comes to the law, such breaches are classified as either “material” or “immaterial,” which in turn determines what kind of “remedy” is legally appropriate in response to the breach.
The difference between material and immaterial can be best understood through a quick example. Company A agrees to deliver a product to Company B by 5:00PM Tuesday. They instead arrive at 8:00AM Wednesday. A court will be highly likely to determine such a breach immaterial and award no remedy to Company B (unless they could prove lost profits – something not so easy to do). However, if the language of the contract had been very clear about the importance of the timeliness of the delivery, a court will be far more likely to find the breach material and thus rule for a remedy in Company B’s favor, likely that Company B would not owe Company A for the delivery.
What You Should Do After a Breach Occurs
When it appears that a breach allegedly happens, one or more parties involved in the contract may opt to have its terms enforced or recover financial losses incurred due to this breach. The first recourse before getting a court involved is usually some personal discussion of possible recourse. If such discussions do not remedy the situation, the most common method to resolve such a dispute would be through a lawsuit over breach of contract using the US court system. There are a few options depending on the state whose laws govern the contract and the value of losses incurred. If they are small enough and in the right state, a small claims court may be used to resolve the issue (this is typically for amounts under $7,500).
Though lawsuits are the most common method to pursue a legal remedy for a breach of contract, other less formal options do exist such as mediation and arbitration. These alternative dispute resolution methods are used outside of the courtroom though typically with a legally qualified mediator or arbitrator to lead the proceedings.
Though there are several ways things may proceed after a material breach occurs, the end result is that the parties who did not breach the contract will likely be entitled to some kind of legal remedy.
Possible Legal Remedies When a Breach Occurs
The law says that when one party breaches a contract, the other parties shall be entitled to a form of remedy or relief. Remedies for contract breach fall into three categories: damages, specific performance, and cancellation/restitution.
This is the most common form of remedy when a breach occurs. A remedy of damages usually results in a payment of some type due to the non-breaching party and paid by the party that breached the contract. The types of damages under the law are numerous and pertain to a contract’s specifics and the type of breach that occurred.
Nominal Damages: this type of remedy is basically a token award when a breach does occur, yet no monetary loss occurred because of it.
Punitive Damages: any punitive damages awarded result in payment over and beyond what would be due the non-breaching party if the contract was held. This type of extra payment is intended as punishment by the court for clear wrong doing and thus is rarely awarded except in cases with particularly wrongful actions.
Compensatory Damages: this would be damages awarded to the non-breaching party in order to secure their position as if the breach had never occurred.
Liquidated Damages: this would refer to any pre-identified damages that were included in the contract between the parties. Such damages attempt to be reasonable in terms of what sort of damages would actually result from the occurrence of a breach.
Cancellation & Restitution: In the even that a breach occurs, the non-breaching parties may actually cancel the contract and sue for restitution of any losses they incurred because of entering into the contract. In other words, to restore the party to the position they were in before a breach. Furthermore, both parties are also relieved of all other obligations of their contract.
Specific Performance: in the event that damages fail to be adequate as a remedy for a breach, non-breaching parties may also seek a separate remedy known as specific performance. This is best understood as having the court order the breaching party to follow the terms of the contact. This is only used in rare or unique circumstances where damages simply fail to suffice as a remedy for a breach of the contract.
Still Have Questions?
There’s a lot that goes into a business contract. If you have reason to believe you are in breach or are contracted with a party who is currently in breach of contract and you have more questions, please give the Law Offices of Yoel Molina a call. Yoel Molina has the experience, dedication, and knowledge to help you secure the best possible outcome, so give our offices a call today.
If you are an entrepreneur or business owner you may not yet realize how important your use and understanding of business contracts will be to the success of your business. Rather than hit you over the head with a long and complicated discussion, I thought I’d do something a little different this time and give you a great list of DOs and DON’Ts to make getting acclimated a little easier.
DO title your contract “CONTRACT” so that there is no mistake about what it is
DO make sure all parties are properly identified by the full legal names that are spelled correctly with up-to-date addresses
DO use a template or generic contract as a guide
DO include the date right at the start
DO use page numbers to protect against the contract being changed after signing
DO make sure all terms are carefully stipulated within the contract
DO use short and plain language as much as possible to limit possible ambiguities
DO make sure you have your attorney review it before signing
DO make sure to have the contract notarized as well as have all parties initial each page
DO keep a copy for your records
DO proofread as even a misplaced quotation mark can change the meaning
DO use a colored ink pen to make the original easy to distinguish from any copy
DO make sure you are as thorough as you can be so that nothing is left out of the contract
DON’T use overly legal or archaic phrases that do little to clarify the meaning of the text of the contract
DON’T use overly long sentences. Break everything down as much as possible.
DON’T be unnecessarily repetitive. It’s better to refer back than repeat.
DON’T assume that all parties understand terms to mean the same thing, instead define them within the contract.
DON’T agree to any changes to the contract unless they are first put into writing.
DON’T rush through or skim the contract. Read it thoroughly to ensure you don’t miss anything.
DON’T accept any oral explanations you don’t understand. Get it in writing.
DON’T assume that because you used a template or standard contract you don’t need to have your attorney review it before you put pen to paper.
Still Have Questions?
That’s a lot of DOs and DON’Ts. Don’t feel bad if you still have questions. In fact, that’s what we’re here for. The Law Offices of Yoel Molina has been serving small business clients in the state of Florida for years and has the legal insight and expertise needed to ensure your business contracts are as air-tight as possible. So what are you waiting for? Give us a call today
There are all kinds of contracts used in business, by by-and-large they include the same basic terms. Of course, not every provision is always needed in every business sector or particular business or contract, but this list of terms still makes up those most commonly used on business contracts. Consider adding any appropriate provisions or terms from this list to your businesses contracts:
Businesses or individuals?
What types of businesses (corporation?)
The proper name of signees
Addresses of parties
General Contract Terms
Duties & right of each party
Relevant dates, prices, and quantities
Payment terms: lump sum, installments, COD
Interest & Late Fees
The purpose of the contract
Warranties & Disclaimers
Governing Law Body
Include statement that contract includes the entire agreement
Still Have Questions?
If you are new to contracts or just starting your business, you may want to give our offices a call to make sure you don’t have any other questions or needs with your contracts. The Law Offices of Yoel Molina are experienced, dedicated, and knowledgeable about contract law. Give us a call today!
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"My name is Anastasia Yecke Gude and I am the owner of Healing Hands Therapeutic Massage LLC. In the process of my company’s growth and expansion, I suddenly found myself a few weeks ago in need of a 1099 contractor agreement, and I needed it ASAP. As in, the very next day! I contacted the Law Office of Yoel Molina and his assistant put me in touch with Mo. I sent him what I had drafted up and he replied within a few hours with suggested revisions and clarifications, as well as a few insights I had not even considered. I was thoroughly impressed by the quality of work he provided, especially considering the time crunch I put him in (sorry, Mo!). I definitely recommend his services to anyone in need of a good contract attorney, and I will be calling him again for future work…hopefully in less of a rush next time!"