Businesses enter into contracts with consumers and other businesses every day. If I could wave a magic wand he would require every person to take a course in business law, especially the law as it relates to contracts.
Every year there are thousands of cases filed in local courts, federal courts and through arbitration and mediation services. An extraordinary number relate to contracts. Many could have been avoided if only the parties understood the agreements that they were entering into and how to resolve disputes regarding the contracts.
It is tempting to say that before entering into any contract one should seek legal advice. While that may be good advice it is radically impractical for the normal person in everyday life. We go though every day entering into and completing contracts. For example, this morning I had not been awake more than 15 minutes today before I had been involved in at least five contracts. The first was with the alarm clock on my iPhone, the second was with my cable company, the third was with a cereal company, the fourth was with a newspaper and the fifth was with a utility company. In each case, a company offered a product or service and I accepted the offer.
So, what exactly is a contract anyway?
In general, a contract is classified as unilateral or bilateral. In a unilateral contract one party is making an offer. For example, my local grocery store is offering a pint of blueberries for $3.99 plus tax. I can choose to accept that offer by going to the store and buying those blueberries or reject that offer by doing nothing. A bilateral contract is one in which both parties to the contract agree to do something. For example, a typical real estate contract is one in which the seller agrees to sell and the buyer agrees to buy for certain agreed upon conditions.
For there to be a valid contract it must contain certain elements. These are (1) an agreement (2) between competent parties (3) made for a legal purpose (4) supported by consideration. Some contracts must also be in writing to be enforceable. Each of these elements have been the subject of thousands of cases of litigation.
It would seem that both parties would understand what they were agreeing to. Unfortunately, that is not always the case. For example, if I agreed to sell you my car in “as is” condition did that mean that it would be in operating condition? What if I agreed to sell you the land that I own that “was formerly owned by my grandfather?” What if I agreed to sell financial consulting services that would make you rich? What is the definition of “rich” anyway? Obviously, agreements can sometimes be vague and disputable.
The subject of whether one or both of the parties was competent at the time the contract was entered into is one that is getting more attention. As the so-called Baby Boomer Generation enters the autumn years of their lives more of its members will be dealing with issues of intent about their wills, trusts, estates, etc. Already, courts are seeing an increase in cases involving competency of older persons.
Valid contracts can be made only for legal purposes. If one party sells another party a bad batch of illegal drugs the buyer may not use the courts to enforce the agreement. Likewise, someone contracting a “hitman” to kill another person cannot enforce the contract if the act did not get carried out.
Consideration is another element that must be present for there to be a valid contract. Most people think of money when it comes to consideration. And while that is certainly consideration, things such as services performed or exchange of goods can be deemed consideration as well.
Every legal expert I have talked to has pointed out that the most important clause in a contract is the remedies for its breach. In other words, what happens when one of the parties does not abide by the contract?
In today’s Internet and digital world there is a form of contract known as an End User License Agreement (EULA). These are those agreements that users of computer programs, applications and various software pop up before downloading. Most users probably never take the time to read what they are agreeing to. I suspect that it is because the agreements tend to be lengthy and that the user believes the benefits outweigh the risk of such agreements. Also, many of these agreements contain a clause such as:
“(The provider) reserves the right to update and change, from time to time, this Software License and all documents incorporated by reference. (The provider) … may change this Software License by posting a new version without notice to you. Use of the … Software after such change constitutes acceptance of such changes.”
Is there really a contract if one of the parties agrees that the other party can change the agreement without notice?
Finally, in this column I’m not offering legal advice. It is my intent to show the importance and use of contracts in daily life. And even though it is not practical to call an attorney every time a person or business enters into a contract, it is important to know that for certain contracts an attorney should always be contacted. Common sense is a good guide.
» Phil Hardwick is coordinator of capacity development at the John C. Stennis Institute of Government. Pease contact Hardwick at email@example.com.