Contracts are executed and performed in all areas of business. From the start of a business to selling or closing of one, many contracts dominate the terms of production, performance, employment, services, and much more. You probably do not even realize it, but your business likely enters into many contracts daily. Buying your employee donuts every Monday morning? That is a contract! Paying the business’ mortgage? That is a contract! Releasing your employees at five o’clock every day? That is a contract! If you are a business owner, you know just how influential contracts are to a successful business. So as a business owner what should you know about contract law?
What is a Contract?
According to the Restatement of Law, a contract is a promise that the court will enforce. While contract law is complex, here is a surface level way to think about contract formation. To be an enforceable contract there must be mutual assent of the parties and consideration. Mutual assent is demonstrated by commitment, content of sufficient certainty, and communication. Commitment is what the parties intend to do. To have sufficient certainty, a promise needs to have definite and certain terms. Lastly, this needs to be communicated between the parties, manifested by the words, conduct, and other surrounding circumstances. According to the Restatements, consideration is a performance that is bargained for. To be bargained for it must be sought by the promisor in exchange for the promise made by the promisee. For example, the electric company promises to warm my house and in exchange I give them money every month. The electric company and I have bargained: I give them money and they give me heat
Performance of Contract
Once the contract is formed, the performance stage of the contract begins. With performance comes the possibility of a breach. A breach is any deviation from the original contract. If one party’s performances do not match the contract 100% then it is a breach of the contract, no matter how trivial. The type of performance by one party will determine if the other party is excusing from performing their promise or still has to perform but is owed damages. For example, if the electric company had contracted to heat my house every day of the month but only heated my house for 15 days, I would still have to pay for the days in which they heated my house (my performance of paying would not be excused). However, I would be owed damages for the days in which they did not heat my house that month.
Excuse for Performance
Usually, each party must perform their promise; however, the courts will recognize that performance should be excused as the result of some kind of unanticipated circumstances. There are three doctrines of excuse: Impossibility, Impracticability, and Frustration of Purpose.
Doctrine of Impossibility: This will allow an excuse because it is impossible to perform the contract.
Doctrine of Impracticability: This will allow an excuse if the party’s performance is made impracticable because an event occurs that was not expected by the parties when they entered into the contract. This even cannot be reasonably foreseeable.
Frustration of Purpose: This will allow an excuse if after the contract is made, a party’s principal purpose is substantially frustrated nearly completely. This simply means the essence or purpose of the contract has been destroyed.
So Now What?
After reading the information above, you might think you could be a successful and knowledgeable contracts attorney. However, contract law is much more complex and detailed than what you have just learned. This is simply a basic overview of contracts. Eden Law is an experienced and successful law firm that can aid you and your business in all your contract needs. Rachel Brenke, the partner at Eden Law, can draft a new contract, review an existing contract, or even litigate with a party who does not perform their contractual duties. Rachel can also answer any of your contract questions regarding an excuse for performance or if a contract was actually formed at all. Make sure to contact Eden Law to learn more about the importance of contracts for your business.
Written by Lindsay M. Thomas