Business and Contract Disputes
Introduction
The most common type of disputes that arise in the business setting are contract related. Most businesspersons enter into contracts more frequently than they may realize. In almost all business dealings, any time you or your company agree to take some action or make a payment in exchange for anything of value, a legal contract has been created. For example, most bills of sale, purchase orders, employment agreements, and other common business transactions are legally enforceable contracts.
"Contract" Defined
A contract is a legally enforceable agreement between two or more parties that creates an obligation to do or not do particular things. The term "party" can mean an individual person, company, or corporation. More on creation of a contract follows below.
At its most basic level, a contract is simply an agreement that is legally enforceable.
Governing Laws of Contracts
Contracts are usually governed and enforced by the laws in the state where the agreement was made. Depending upon the subject matter of the agreement, a contract may be governed by one of two types of state law. The majority of contracts (i.e. employment agreements, leases, general business agreements) are controlled by the state's common law. Common law is a tradition-based but constantly evolving set of laws that is mostly judge-made from court decisions over the years, also referred to as precedent. However, the common law does not control contracts that are primarily for the sale of goods. Contracts for the sale of goods are controlled by the Uniform Commercial Code (UCC), a standardized collection of guidelines that govern the law of commercial transactions.
Creation of a Contract
In the eyes of the law, a contract arises when there is an offer, acceptance of that offer, and sufficient "consideration" to make the contract valid. An offer allows the person or business to whom the offer is made to reasonably expect that the offering party is willing to be bound by the offer on the terms proposed. The terms of an offer must be definite and certain. An acceptance is a clear expression of the accepting party's agreement to the terms of the offer. Consideration is a legal term given to the bargained-for exchange between the parties to the contract; that is, something of some value passing from one party to the other. Each party to the contract will gain some benefit from the agreement, and will incur some obligation in exchange for that benefit.
Types of Contracts
The law recognizes contracts that arise in a number of different ways. A “bilateral contract” is a mutual exchange of promises among the parties. In a bilateral contract, each party may be considered as both making a promise, and being the beneficiary of a promise. A “unilateral contract” is one in which the offer requests performance rather than a promise from the person accepting the offer. A unilateral contract is formed when the requested act is complete. A classic example of a unilateral contract is a "reward" advertisement, offering payment of money in exchange for information or the return of something of value. An “express contract” is formed by explicit written or spoken language, expressing the agreement and its terms. An “implied contract” is formed by behavior of the parties that clearly shows an intent to enter into an agreement, even if no obvious offer and/or acceptance were clearly expressed in words or writing.
Breach - Failure to Perform Under the Contract
When disputes arise over contracts, one party may accuse another of failing to perform under the terms of the agreement. Under the law, a party's failure to fulfill an end of the bargain under a contract is known as "breaching" the contract. When a breach of contract happens, or when a breach is alleged, one or both of the parties may wish to have the contract "enforced" on its terms, or may try to recover for any financial harm caused by the alleged breach.