Considerations in Contracting

          One of the first things law students learn about in their first year is the basics of contract law.  One of the first discoveries is how easy it is to create a legally enforceable contract. All that is needed is the communication of an offer of some “quid pro quo” (Latin: “this for that”) to another party and that party’s communication of an acceptance of the offer. Despite what some think, an oral contract is as binding as a written contract (though some types of contracts must be in writing for the evidence of the contract to be recognized by the Courts under the “Statute of Frauds”). The Courts will not ascertain the valuations of the value given by either side, though a legally enforceable contract does require that each side give some “consideration” (basically value). The courts will not normally enforce a promise by one side to provide value without a reciprocation (Exception: Rare cases in which the promise causes detrimental reliance to the other side). 

           Despite the theory of contracting by solely an oral offer and acceptance, the reality of enforcing the contract requires evidence of the contract that the Courts recognize and a judge and/or jury would find convincing enough to prove the contract. If two parties make an oral contract without witnesses and one side backs out, the evidence will likely be the testimony of each party which will likely conflict. In that event, and with the burden of the “preponderance of the evidence” on the side seeking to enforce the contract, the contract would likely not be recognized and enforced by the court. Other evidence can help provide enough proof, like witnesses to the oral contract, history of such course of dealing and business, or partial performance of the contract. The problem is that this doesn’t guarantee enforcement, and would likely not bring enforcement to the particulars of the contract. Additionally, certain contracts like those dealing with real estate, marriage, high dollar values, or performance that cannot be completed in one year are required to be in writing (signed by the party against who the case is brought) for the Court to recognize that evidence (again, with particular exceptions like partial performance). Therefore, a written contract is almost always the best method.

         When drafting a written contract, it’s important to know that once the contract is put in writing, and parties have signed, a party cannot bring in evidence of a later oral agreement contradicting terms of the written contract.  That’s a Court concept called the Parole Evidence Rule.  Therefore, parties should consider what goes in the contract, and closely read all provisions, prior to signing.  The contract should provide as much specificity as will be needed for the nuances of the type of contract. Parties should consider an alternate dispute resolution provision to help prevent Court costs in the event one party alleges a breach.  That can be a mediation and then mandatory arbitration provision for one judge to consider the evidence and render a binding judgement.  Sometimes, contracts can become too specific in such a way as parties would not be able to orally agree to a minor matter without contradicting a provision of the written contract. Parties should consider confidentiality clauses, to prevent reputational or intellectual property rights damages to both parties. 

         It’s important to remember that contracts are for many different situations and areas of the law.  For example, when parties agree to settle a personal injury case, they will sign the settlement agreement with the Quid pro Quo. Normally, that is a contract for one party to pay the other party money in exchange for a signed release of all claims and liability (and potentially dismissal of a lawsuit). The settlement agreement includes release language, and the injured party will normally have to sign the release to receive the money (damages) for the injury.  It’s important in these cases to retain a lawyer.

        Whenever it’s within financial means, consider retaining an attorney to draft a contract. The attorney will consider aspects a non-lawyer will not. Additionally, that puts liability on the lawyer in which he is responsible for the legal sufficiency of the contract, and can be held to account if the contract falls short through his negligence. 

Last word on staying out of trouble in contracting, and something your parents probably told you growing up:  Keep your word and try to do business with those who keep their word.