When someone thinks about business contracts, he likely conjures images of two people in suits sitting at a conference table and authoritatively signing page after page of official-looking documents with their business attorney watching from the sidelines. Many people don’t realize that dozens of everyday interactions are actually considered a form of contract, You need to be aware of your rights and obligations with each contract to help your business succeed. Understanding a few key fundamentals of contract law will pay off in the long run.
Express contracts spell out the terms both parties agree to, typically using extensive documentation. Everything is defined including a definite offer, consideration, and unconditional acceptance. Express contracts are especially common in real estate transactions, but you also find them when you rent a car, review your insurance policies, and so forth. Enforcing express contracts tends to be straightforward because terms and conditions are thoroughly documented. Since express contracts are so thorough, though, they often involve boilerplate language, “legalese”, and a level of detail that may make the average person’s eyes cross. If the terms are serious and far-reaching or involve language difficult to understand, asking a contract review attorney to assess the express contract ensures you enter an arrangement fair to you and terms you can live up to.
Implied contracts take two forms, but in both cases, the contract is put into place without explicit terms being discussed or a document being signed. The two types of implied contracts are
- Implied in fact contracts, which occur because the conduct of both parties leads to a common understanding. For example, if you go to a stylist to get your hair cut, by sitting in her chair and letting her fix your hair, you implicitly acknowledge you’ll pay for her services.
- Implied in law contracts, also called quasi-contracts, which arise after an event when one party seeks restitution from another who was unjustly enriched by the first party’s actions. For example, if a diner chokes on their dinner and a doctor performs the Heimlich maneuver, the doctor could possibly present a bill for services. Since the diner received timely, lifesaving medical care, a court may decide the doctor should be compensated, even though the diner didn’t agree to pay before the services were provided.
The only way to avoid implied contracts for services is to insist upon crafting estimates and establishing agreements ahead of time.
Proving a straightforward breach of implied contract may be somewhat easy: a plumber is hired to fix a leaky faucet, and after the job is done, the homeowner refuses to pay. Other forms of implied contracts can be much trickier, such as the implied contract that happens when a business owner shakes hands with someone who has been offered a job. A few days later, the business owner rescinds the offer, even though the job candidate has now resigned from their current position. Can the business owner be held liable for failing to follow through on an implied contract? Specific circumstances can make a tremendous difference in implied contract cases, which is why you would benefit from the expertise of a contract or employment law attorney in such a situation.
Oral contracts come into play when an agreement is reached verbally or with a handshake instead of using terms spelled out on paper. Especially common between small businesses, oral contracts rely on the goodwill of both parties.
While oral contracts are legally enforceable, they are generally not accepted for real estate sales, transferring property from an estate, assuming someone else’s debts, or agreements that last more than a year. If you sue someone over a breach of contract for an oral agreement, know that the burden of proving the contract existed will fall on you and your contract lawyer. Unless you can demonstrate that you relied on the defendant’s promise and suffered some detriment as a result, or you can prove that both parties have complied with at least part of the terms of the oral contract, you may not be able to successfully pursue a claim.
Written contracts take the form of documentation about an agreement that has been reached. They may not be as extensive as an expressed contract, but at least some of the parameters of the arrangement will be clarified in a written contract. Even the most basic written contract will be enforceable if it demonstrates both parties considered and agreed to the terms, which means facing potential business litigation if one party fails to follow through on their part of the contract. Before entering into any written agreement, it’s wise to consult with a contract review attorney.
The Big Lesson
When it comes to any type of contract, follow these simple rules
- As much as possible, rely on written and explicit contracts to avoid surprises.
- Read everything before you sign.
- If you don’t understand something or find yourself confused, don’t agree to it until terms are clarified.
- It’s better to be safe than sorry, so if you have doubts or questions, contact a contract law expert at Northwest Business Law