Contract Policies & Procedures
Although some of contract law is arcane, much of it is common sense. Many documents that you might not think of as contracts actually do represent contracts--a receipt at a parking garage, for example. It is a good idea to understand the basics of contract law in order to predict what will happen in the event of a dispute.
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Contract Formation
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The basic elements of any contract are offer, acceptance and consideration. "Consideration" is a legal term meaning that something of value is given on both sides--a unilateral promise to give a gift, for example, cannot be enforced under contract law. In addition, certain defenses to contract formation exist. For example, contracts with illegal objects (such as contracts for prostitution or loan sharking) or contracts that are based on fraudulent misrepresentation cannot be enforced.
Recission
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A contract may be cancelled ("rescinded") under certain circumstances. Although no damages are awarded, some payment may be required to put both parties in the same position that they were before entering the contract. For example, if you pay a deposit on the purchase of a house and the house burns down, the contract may be rescinded due to destruction of the subject matter of the contract, and the seller will have to return your deposit.
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Statute of Frauds
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Every state has its own version of the Statute of Frauds, which requires that certain contracts be put into writing in order to be enforced. Among these types of contracts are contracts purporting to transfer an interest in real estate (such as the purchase of a home or an apartment lease), and contracts that by their terms cannot possibly be completed within one year (a two-year automobile lease, for example). Contracts not covered by the Statute of Frauds may be enforced even if they are not written down, as long as the party seeking damages can prove the existence of the contract and its basic terms.
Breach
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A breach is a violation of the terms of a contract. The law recognizes two forms of breach--non-material and material. A non-material breach is a minor breach that is not considered serious enough to justify releasing the non-breaching party from her obligations under the contract. Damages may be assessed against the breaching party, but contractual obligations will remain on both sides. A material breach entitles the non-breaching party to release from contractual obligations as well as damages from the breaching party. The question of whether a breach is material or non-material is determined on a case-by-case basis.
Remedies
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The most common remedy for material breach is damages. The non-breaching party is entitled to the benefit of the bargain that was made--for example, if an aggrieved buyer agreed to purchase one hundred shirts at $17 each and the market value of these shirts was $20 each, the breaching party would be liable for $300 in order to compensate the non-breaching party for the profit that he otherwise would have made from buying the shirts at a bargain price. In some cases, the court will order the breaching party to actually perform the contract (known as "specific performance"), although this is relatively rare. The most common instance of specific performance is when a court orders a seller who attempts to renege on a real estate sale and purchase agreement to actually transfer title to the buyer.
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