Contract Law: Where And How It Applies

Contract law is the area of law that governs the creation and execution of contracts, as well as the resolution of disputes that arise from breaches. A contract is an agreement between two parties, creating mutual obligations that are enforceable by law. It is a legally enforceable agreement between two parties to do or not do something. Contracts are used in a variety of contexts, from business operations and transactions to employment and insurance agreements. They can be verbal or written, but they must contain certain elements to be valid and enforceable. These elements include a valid offer, acceptance, consideration, mutual assent, capacity, and legality. Understanding contract law is essential for individuals and businesses alike, as it provides a framework for conducting business and resolving disputes fairly and effectively.

Verbal vs. written contracts

Verbal agreements are a type of contract and are generally legally binding. However, they can be difficult to prove in court, and the involved parties may have different recollections of the terms over time. Oral contracts must contain all the elements of a legally binding agreement, including offer and acceptance, consideration, free consent, lawful purpose, certainty and completeness, and capacity.

Written contracts are often preferred as they provide evidence in court in cases of breach or fraud. They also limit one party's ability to change the terms after the fact. Written agreements are necessary for certain types of contracts, such as the sale or transfer of real estate, the sale of goods over a certain value, and contracts that cannot be completed within a year.

While verbal contracts are valid in most cases, there are some exceptions. Verbal agreements are usually insufficient for contracts that require a witness or documentation, such as the sale or transfer of real estate, the sale of goods over a specified value, and contracts that cannot be completed within a year.

Written contracts offer several advantages over verbal agreements. They provide clear evidence of the terms agreed upon and make it more difficult for parties to renege on their commitments. Written contracts also protect all parties from potential misunderstandings during negotiations. Additionally, they are easier to enforce in court, reducing the time and cost of establishing the existence of a valid contract.

In conclusion, both verbal and written contracts are legally binding, but written contracts are generally preferred due to their superior enforceability, clarity, and protection against misunderstandings. Verbal contracts may be suitable for simple agreements, but written contracts are essential for more complex or high-value transactions.

Employment contracts

The terms of an employment contract may include a job description, pay rate, and other job-related information. It may also include non-disclosure agreements, clauses regarding confidentiality, the organisation's code of conduct, and policies on social media or data protection.

In some jurisdictions, employees have the right to a 'written statement of employment particulars', outlining the main terms of their employment, such as pay and working hours. This is distinct from the broader employment contract, which includes other agreed-upon terms.

Real estate contracts

Requirements for a Valid Real Estate Contract:

• Offer: One party initiates the process by preparing a written contract, signing it, and presenting it to the other party. The recipient can then accept, counteroffer, reject, or not respond to the offer.
• Acceptance: Acceptance is indicated by the recipient signing the contract. Both parties must possess the original signatures for the contract to be enforceable. Any alterations to the contract should be initiated by both parties.
• Consideration: This refers to something of value exchanged between the parties, typically in the form of money but it could also be a promise to perform or another property.
• Legal Capacity: All parties involved should be eligible to enter into a contract, meaning they are not minors, mentally impaired, or otherwise legally incompetent.
• Legality of Purpose: The contract should not involve any illegal actions or activities.

Common Types of Real Estate Contracts:

• Purchase Agreement: This is the most common type of real estate contract, outlining the terms of the property's sale, including the identities of the parties, property description, condition, rights and obligations, contingencies, appliances and fixtures included, earnest money deposit, closing costs, and signatures of both parties.
• Real Estate Assignment Contract: This type of contract is used in wholesale real estate to facilitate the sale of a property between a homeowner and an end buyer. It gives an investor the right to purchase a property without actually buying it, and they can then sell their rights to another buyer.
• Lease Agreement: This contract binds a property owner (landlord) and a renter (tenant) to an agreement, specifying the rent amount and other important provisions such as the security deposit and payment of utilities.
• Power of Attorney: This type of contract is used when the principal (the person who granted permission for someone to act on their behalf) is unable to sign the contract due to illness, absence, or other reasons. The appointed representative then signs the contract on their behalf.

Key Elements of a Real Estate Contract:

• Parties Involved: The contract should include the names and contact information of both the buyer(s) and seller(s).
• Property Description: A detailed description of the property, including its address, legal description, and any specific features.
• Purchase Price: The agreed-upon price for the property.
• Closing Date: The date by which the transaction must be finalised.
• Financing Terms: Details of any financing arrangements, such as mortgages or loans.
• Earnest Money Deposit: The amount of money provided by the buyer as a deposit to demonstrate their commitment to the purchase.
• Contingencies: Conditions that must be met before the sale can be finalised, such as obtaining financing or passing inspections.
• Inspection Period: The timeframe during which the buyer can conduct inspections to identify any potential issues with the property.
• Title Transfer: Outline of how the title to the property will be transferred, including the method and any required documents.
• Default Provisions: Addressing the consequences if either party fails to fulfil their obligations under the contract.
• Disclaimers: Any disclaimers related to property condition, warranties, or representations.
• Entire Agreement: A clause stating that the contract represents the complete agreement between the parties, superseding any prior or contemporaneous agreements.
• Signatures: Signatures from both the buyer and seller are required to make the contract legally binding.
• Disputes and Remedies: Provisions outlining how disputes will be resolved and what remedies are available to the parties.

It is important to note that specific components of a real estate contract may vary depending on local laws, customs, and the unique terms negotiated by the parties involved. Consulting with a real estate attorney is always advisable to ensure that the contract adequately protects the interests of all parties.

Contract breaches

A contract is a legally enforceable agreement between two parties. A breach of contract occurs when one party fails to deliver according to the terms of the agreement.

Types of Breaches

There are several types of contract breaches, including:

• Minor/Partial/Immaterial/Minor: A minor breach occurs when you don’t receive an item or service by the due date or when the terms of the agreement have been partially satisfied. For example, if a tailor delivers a custom-fitted suit a day after the promised date, or if only some of the purchased goods have been delivered.
• Material/Serious: A material breach is when you receive something different from what was stated in the agreement. For example, if you ordered 200 copies of a bound manual but received gardening brochures instead.
• Actual: When one party refuses to fully perform the terms of the contract.
• Anticipatory: When a party states in advance that they will not be delivering on the terms of the contract, or when one party expects the other party to breach and breaches first.

Consequences of a Breach

The consequences of a breach of contract can vary depending on the type of breach and the specific contract involved. In general, a breach of contract is not considered a crime or a tort, and punitive damages are rarely awarded. The goal of contract law is typically to ensure that anyone who is wronged is left in the same economic position they would have been in had the breach not occurred. This may involve compensatory damages, with the breaching party paying the non-breaching party enough money to obtain the services they failed to provide.

Resolutions

The process for dealing with a breach of contract may be outlined in the original contract. For example, a contract may specify a fine for late payment. If the resolution is not included in the contract, the involved parties may settle the situation among themselves, which could lead to a new contract, adjudication, or another type of resolution.

Contract negotiations

The first element is the offer, which involves one party making a proposal to provide a product, service, or payment. The offer should include clear and specific terms that the other party can accept or reject. If the other party accepts, the contract is formed. However, if they propose changes to the original offer, it becomes a counteroffer that the first party can accept or further negotiate. This back-and-forth exchange highlights the importance of mutual assent, where both parties voluntarily agree to the contract's terms and obligations.

Consideration is another vital component of contract negotiations. It refers to the exchange of value between the parties and can take the form of monetary payment, services rendered, or a promise to perform an action or refrain from doing so. The consideration must be comparable to the obligations of each party and induce them to enter into the contract.

During contract negotiations, the parties also discuss and finalise the specifics of the agreement, including prices, delivery dates, quantities, and dispute resolution methods. These details are essential to ensuring a clear understanding between the parties and reducing the risk of future disputes.

Additionally, the capacity and legality of the contract are crucial considerations. All parties involved must be mentally competent and legally authorised to agree to the terms. This includes ensuring that minors, individuals under the influence, or those with mental incapacities are not bound to the contract without proper consent and understanding.

While oral contracts are legally binding, it is generally advisable to put contracts in writing. This enhances enforceability and provides clearer evidence in court if a breach of contract occurs. Written contracts also allow for the inclusion of boilerplate language required by state laws, ensuring compliance with relevant regulations.

Frequently asked questions