Whether in business or in personal life, contracts are important. For many, giving one’s word is a bond they will never break. If they tell someone they will do something, they will stick to it as an ethical obligation without the threat of legal enforcement. Unfortunately, not all those in life have the same kind of passion about keeping their word. Particularly in business contracts, but also in personal life, having the ability to legally enforce a contract is critical. That’s what this article is all about.
The courts consider any accepted “offer” to be a legally binding contract. The key elements are that one party communicated an offer to another party, and the other party accepted the offer at the terms given. That’s it. For many contracts, parties are allowed to testify in court about what was communicated as an offer and what was communicated as their acceptance. A party can bring an action in court and have the ability to testify as to what was said between parties in creating the contract. As long as a “quid pro quo” existed (each party promised something of value to the other through the offer/acceptance) a party can be held to the contract and damages flowing from a breach of that contract.
Parties attempting to enforce a contract or seek damages for a breach of contract should understand the challenges of bringing an action based on an oral contract. Though the courts will recognize the legal sufficiency of an oral offer and acceptance to form a contract, the other party can be expected to dispute those communications. If they didn’t dispute the communications, parties likely wouldn’t seek the court for redress. Therefore, it’s quite important to analyze the extrinsic evidence of the oral contract. Witnesses can be a great source of evidence, particularly if the witness is not closely aligned with the party bringing the action. A family member or close friend will be considered a biased source of testimony, for example. Additionally, the evidence of partial performance of the contract can be great evidence if the parties agreed. Sometimes, just the course of dealing between the parties in routine contracts can help establish the existence of an enforceable contract.
Some contracts are required to be in writing in order to bring evidence of the contract before the courts by the “Statute of Frauds”. Contracts associated with marriage, contracts dealing with real estate (land), contracts that cannot possibly be completed within one year are examples of contracts of which the court requires some writing for evidence of the contract (oral evidence is not enough). The writing used as evidence must be signed by the party against whom the action is being brought. This can be any type of writing, including even notes on a scratch piece of paper describing the contract and signed by at least the party who will be the Defendant in court. By the “Parole Evidence Rule” if parties later make an oral agreement about the contract that would contradict a term in writing, it cannot be used to help fill in any questions about the contract. However, other non-written evidence can be used to help better explain the terms of the contract as long as the evidence does not contradict the terms of the parties in writing.
In Personal Injury cases, many times parties will come to a settlement. That settlement will include settlement terms and the person bringing the case releasing the liable party from future threat of a lawsuit by the party bringing the suit. In settlements, though the agreement is a contract and “could” be oral, lawyers associated with the parties are required to obtain signatures before disbursing proceeds. In dealings with lawyers, certain contracts are required by attorney ethics rules to be in writing. For example, for a lawyer to take a case on “contingency” (lawyer is not paid fees during the case, but collects a percentage usually 33%), he must have the client’s signature in writing to work on that basis. He must also obtain the client’s signature agreement to the disbursement of funds by their agreement.
There are many, many other laws and evidence rules associated with contracts, but the key takeaway should be the importance of getting contracts in writing, ensuring the writing is clear about the main terms of the contract, and considering legal representation for substantial contracts that involve sophisticated terms and have the potential for critical loss.
