Each day we enter into a variety of relationships. Commercial relationships often involve the formation of contractual relationships between two or more parties.

contract is generally a bargained for exchange for value between two or more parties. Each one of these terms has a precise legal meaning which form the basis of the law of contracts. A “bargain” in this sense means that there is some manner to determine the agreed price for goods or services exchanged or purchase price for goods. For example, when a client walks into your office, the price for services is determined by the agreed fee. If you advertise your services, you are, legally speaking, soliciting offers to enter into a contract. The contract is consummated when agreement is reached or implied from the fact after services are rendered or goods are purchased and accepted. If a “contract price” has not been clearly established, the law usually permits recovery of the reasonable value of the goods or services rendered. Please also note that there are various laws and rules which sometime govern how and in what manner solicitations for contract may be made.

Another key term in the definition of a contract is “value.” Value (sometimes referred to as “consideration”). This can be an enormously complicated legal concept, which includes cash payment, credit card remittance, trade-outs, and exchanges of promises to do or not to do certain things. Notice that the “value” must be “exchanged” that is there must be an exchange of a “value for value” in order for there to be a legally binding contract. The exchange of value must be a free exchange not compelled by fraud, duress, or grossly unequal bargaining position. Value in this sense can also involve actions which place one of the parties in a materially different position than before the contract. For example, a doctor may agree to treat me now and bill me later for services. Legally here is what is happening: the doctor changes his/her legal position by extending the agreed services (one of the “values”); my promise to pay you later changes my legal position (by creating a debt) and my promise to pay you later is the return “value.”

The word “person” means a legally recognized entity or being capable of entering into a contract. “Persons” for these purposes include all competent adults, partnerships, corporations, limited liability companies and unincorporated associations. Notice that neither children nor mentally impaired adults are able to legally obligate themselves to a contract.

One of the more frequently asked questions I receive is must a contract be in writing to be legally binding? Some contracts always need to be in writing as a matter of law, including: contracts involving real property, for the sale of goods over $500, and promises to answer for the debt of another. Also, contracts which take more than a year to complete need to be written. Accordingly, not all contracts need not be written to be enforced and some (such as store purchases) are routinely upheld. The practical problem with oral contracts is that unless the facts and circumstances of the “deal” are crystal clear, it may be difficult to establish to a court’s satisfaction the terms and conditions mutually agreed upon by the parties. This is perhaps what gave rise to the quote, “An oral contract is not worth the paper it’s printed on.” 

Many other factors can also bear upon the sanctity and enforceability of contracts. Most commonly, contracts may contain “terms” which condition the promises and/or performance of the parties, such as warranties or disclaimer of warranties. For certain contracts involving the sale of goods, terms are provided (if absent) by a law called the Uniform Commercial Code.

My contracts law instructor in law school used to describe contracts as a mini constitution among the parties to the contract in that it should clearly define the rights and responsibilities of one side to the other. Achieving clarity in a contract is essential to insuring that the intents of the parties are carried out without further dispute. While not all contracts need to be complex, it is a good idea to consult with a qualified attorney before entering into any contract which you do not fully understand or which contain complexities which need to be clarified in a precise judicial manner.

Notice: The foregoing article is intended for general educational purposes only and is not intended to provide specific advice or legal counseling with respect to any problem.