Contracts In A Nutshell

A contract is an, expressed or implied, agreement between parties, creating legal obligations and enforceable in a court of law. Contracts are an exchange of promises to do something or refrain from doing something. A person who fails to act as promised breaches the contract and may be liable for damages.

The five key elements for the creation of a contract are offer, consideration, acceptance, intention and capacity. There is no contract unless the five requirements have been met.

1. Offer – means to present a proposal to someone. Ex. – Would you fix my window?
2. Consideration – is the price to induce another to accept an offer. Ex. – I will pay you ten dollars ($10).
3. Acceptance – means to agree with the request, to accept the offer. Ex. – Yes, I’ll repair your window for $10.
4. Intention – means both parties understand they are creating a legal relationship intending to fulfill their contractual promises.
5. Capacity – means the parties have the mental capacity to enter into an agreement. Ex. – they were not mentally incompetent, a minor, or drunk when contract entered.

Contracts are expressed either written or orally. Everyone enters into oral contracts on a routine basis. Every product you purchase is a contract. I will give you $1 for a cup of coffee, $3 for a gallon of gas, etc…. Contracts involving real estate, sale of motor vehicle, insurance, etc…, are legally required to be in writing.

A contract need not always be expressed orally or in writing. An implied contract is one in which the terms are not expressed in words. An implied contract is one in which the facts or circumstances suggest the parties reached an agreement. Ex. – going to a doctor for a checkup. Refusal to pay after being examined, the patient has breached a contract implied in fact.

Contracts may be bilateral or unilateral. A bilateral contract is an agreement which the parties make promises to each other. Ex. – contract for sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller's promise to deliver title to the property. Each party makes a promise.

In a unilateral contract only one party makes a promise. Ex. – Advertisement to pay reward for finding dog. You’re not obliged to find dog, but I’m legally obligated to pay the consideration for finding my dog. Acceptance occurs on satisfaction of the condition (finding dog). Ex. – insurance companies promise to pay premium covered event. Insured makes no promises to pay premiums. In short, a unilateral contract is any offer requesting performance instead of a promise.

The definition, duration and extent of contractual terms are common arguments in contractual legal disputes. The terms of a contract give rise to contractual obligations, the breach of which may produce a liability. If the terms of the contract are uncertain or incomplete, the contract may explode and no longer exist. In the eyes of the law, no agreement can be reached when the terms of a contract are silent or uncertain. Generally, with exceptions, if something is omitted from the contract, you’re not going to get it. So be clear and explicit with what you want and the wording of your contracts.

Contractual terms are usually expressed but may be implied and form a provision of the contract. Terms may be implied through a previous course of dealings, common trade practice, standardized relationships or implied by law. Most countries have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, American states have adopted Article 2 of the Uniform Commercial Code, which regulates contracts for the sale of goods. And the requirements of the UCC are implied in all contracts for the sale of goods whether expressed in the contract or not.

Setting aside a contract. The courts can set aside contracts for misrepresentation, mistake, duress, undue influence, illegal purpose and contrary to public policy.

Misrepresentation (fraud) means a false statement of a material fact, made by one party to another party, and has the effect of inducing that party into the contract. Ex. – a person with two prior heart attacks applies for new health insurance. To induce the insurance company to issue a policy, the applicant misrepresents he had no previous heart attacks. If the carrier knew the truth, it would not have entered into a contract. A finding of misrepresentation allows the contract to be set aside. Note, statements of opinion or intention are not statements of fact in the context of misrepresentations. Only fraudulent statements of fact are misrepresentations, not statements of opinion or intentions.

Mistake means an incorrect understanding by one or more parties to a contract and may be used as grounds to void the agreement. A common mistake where both parties hold the same mistaken belief of the facts, making the performance of the contract impossible, the courts generally set aside the contract. A mutual mistake is where both parties are mistaken to the terms. The courts usually try to uphold mutual mistake contracts if the terms of the contract are reasonable. A unilateral mistake is where only one party is mistaken to the terms. The courts will generally uphold such contracts unless special circumstances exist.

Duress is defined as a ‘threat to compel a person to do something against their will’. Ex. – Armstrong threatened to kill Barton if he did not sign a contract, so the court set aside the contract.

Undue influence is defined as an equitable doctrine involving one person in a special relationship taking advantage of a position of power over another person. Courts can only set aside contracts for undue influence where a special relationship of trust and confidence exists. Ex. – Parent has control and dissipates minor child’s assets. Child has control and dissipates aging parent’s assets.

A contract is unenforceable or set aside if it is based on an illegal purpose or contrary to public policy. Ex. – He didn’t pay as agreed for flying in marijuana. He agreed to work for less than minimum wage. He agreed to forfeit right to workman's compensation.

A breach of contract is failure to perform as stated in the contract. There are many ways to remedy a breach of contract. Typically, the remedy for breach of contract is an award of money damages. When dealing with a unique subject matter (realty), specific performance may be ordered.

There are four different types of damages.

1. Compensatory damages which are given to put the party in as good of a position as the party would have been in had the contract been performed as promised. Note, once a breach has occurred, the non-breaching party has a duty try to mitigate damages.
2. Exemplary damages are used to make an example of the party at fault to discourage similar crimes. Ex. – treble damages for breach of contract amounting to civil theft.
3. Nominal damages which include minimal dollar amounts, often sought to obtain a legal record of who was at fault.
4. Punitive damages which are used to punish the party at fault. These are not usually given regarding contracts but possible in a fraudulent situation.

There may be circumstances in which it would be unjust to permit the breaching party simply to pay the injured party damages. For example where an art collector purchases a rare painting (unique value) and the vendor refuses to deliver. Or the sale of land (unique value) where the seller repudiates the sales contract. The court may order specific performance, requiring that the contract be performed, the painting or land delivered as compared to return of the money contracted. Note, specific performance is an equitable discretionary remedy not available as a right. In most circumstances a court will not normally order specific performance. The property in question must be of unique value.

The procedures to obtain damages for breach of contract or specific performance are three: pre-litigation mediation, arbitration and civil lawsuit. It is natural to try and resolve a dispute in mediation before incurring the expense of litigation. You or a mediator arranges for the parties to meet with a trained mediator and resolve the dispute before court fees are incurred. If not resolved during pre-litigation negotiations then arbitration or civil suit needs to be filed. If the contract contains an arbitration clause, you must submit to arbitration in accord with the Uniform Arbitration Act, otherwise, you can file a civil suit.

This outline gives a summary of contract law in Florida. There are many factors that would affect the timing and approach to contract law proceedings. There are alternative ways to resolve your injury claims, ranging from an inexpensive consultation, to pre-litigation mediation, to litigation. For specific information directed to your situation please contact this office at your convenience.