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This LegalCapsule,™  prepared by the Auerbach Law Firm, is a plain-English explanation of contracts. In an effort to be brief, many points may be oversimplified. Readers are therefore cautioned to check with our offices or another lawyer as to the particulars of their case; this generalized information should not be construed to be formal legal advice.

A contract, simply stated, is an enforceable agreement between two or more parties which creates obligations between those parties. Parties entering into a contract are bound by its terms, so whether the subject matter is of a consumer or business nature, each party should be acutely aware of the promises being made.

Does a contract have to be written?

What is required to form a contract?

Can a contract be changed?

What happens when the contract is breached?

What can be done when the terms of a contract are not met?  

Does a contract have to be written?

Certain types of contracts, such as those affecting real estate, negotiable instruments, and those requiring long-term performance are often required to be in writing in order to be enforceable. Although oral agreements can be valid contracts, the specific terms are often difficult to prove in a court of law.

What is required to form a contract?

Generally, no formal or technical words are required to form a contract. However, contracts must have the following characteristics:

  • The parties to the contract must be competent to enter into the agreement. They must have the capacity to understand the terms of the agreement and not be under any legal disability;

  • The terms of the contract must be clear and definite;

  • Contracts must impose an obligation on each of the parties;

  • The contract must have "consideration," which means that each party must acquire and/or surrender something of value. Consideration can be expressed in various forms. For example, a promise to repair an automobile, exchanged for a promise by the other party to pay for the repairs;

  • There must be a "meeting of the minds" by the parties at the time of the agreement; and

  • Every agreement must have an offer by one party and an acceptance by the other party.

Can a contract be changed?

The parties to a contract can always agree to modify the agreement. The modified agreement then becomes a new contract provided all the requirements of a contract as discussed above have been met. Similarly, the parties can agree to rescind or terminate a contract.

What happens when the contract is breached?

If a party has, without justification, failed to live up to his or her obligations under the terms of the contract, it is known as a "breach of contract." When one party breaches the contract, the other party may be excused from performing under the contract.

What can be done when the terms of a contract are not met?

A non-breaching party may file a suit in court seeking damages from the breaching party.

If the breach is substantial and goes to the heart of the agreement, the non-breaching party is entitled to all sums which result directly from the breach.

In some cases, the non-breaching party can also request the court to require the breaching party to perform the contractual obligations. This type of action, known as "specific performance," is often found in those circumstances where the performance to be rendered is unique and is difficult to quantify in monetary terms.


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This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Send mail to webmaster@auerbachlawfirm with questions or comments about this web site. Copyright © 2013, Auerbach Law Firm. All rights reserved.