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!