CONTRACTS: PREPARATION, REVIEW & NEGOTIATION

The Importance of Written Business Contracts

In our day to day activities, most contracts are in fact made orally. Examples of such common oral contracts include buying a hot dog with cash at a baseball game (the vendor offers to sell you a hot dog and you accept) or selling used lawn furniture at a yard sale (your neighbor offers to buy your furniture for $10.00 and you accept said $10.00 in exchange for your old furniture).

In the context of business; however, it is imperative that the terms of every contract are memorialized in writing through clear and concise drafting, fair negotiation and attorney-guided review. This ensures that the written agreement meets the intentions of each party to the contract regarding their respective rights and obligations. Our Boston-based contracts lawyers have a wealth of experience in preparing business contracts for client use in a wide variety of transactions across a broad spectrum of industries. We advocate the best interests of our clients through the entire contracting process, including drafting, review, negotiation, execution, amendment and termination.

If a business gives you a contract to sign, it is imperative to have an experienced contracts lawyer explain your rights and obligations under the proposed contract. The person who presented you with the contract for signature had their own best interests in mind when he or she prepared the contract, not yours. Our Boston-based contracts lawyers review and zealously negotiate contracts on behalf of our clients to avoid the creation of oppressive and lopsided terms and unintended obligations.

If you are planning to enter into a business relationship or transaction with another person or company, it is critical to discuss the proposed relationship or transaction with an experienced contracts attorney. Our Boston-based contracts lawyers will draft a written agreement detailing each right and obligation of the parties. Clear and concise drafting goes a long way toward minimizing confusion, misunderstandings and costly litigation.

A good business contract sets forth in detail each term and condition of a proposed business relationship, including product sales and delivery of services. The written contract provides the parties with peace of mind knowing they are protected from all manner of misunderstanding that inevitably arise in the absence of a written contract.

If you are going into business with a friend or family member, it is of even greater importance to create a written contract prior to commencing the business relationship. Doing so will protect you from miscommunications and resulting misunderstandings and misgivings. Our Boston-based contracts lawyers draft and negotiate written contracts to save you from the arguments and hard feelings that often end friendships.

If you do not have a written agreement and decide to go into business on a handshake, with the passage of time you will inevitably forget some points that you agreed to verbally and so will your business partner. This will happen almost with certainty and a business dispute of one kind or another will arise. However, with a written agreement memorializing your handshake, all the terms, conditions, rights and obligations are crystal clear. In the event of a dispute between the parties, at any point in time, you can reference the written contract where there will be a roadmap to a solution. Of course, the passage of time often changes the circumstances of a business relationship or the personal or professional status of one or more parties to the contract. In these instances, the agreement can be amended through the consent of both parties.

People can often be impracticable when it comes to creating contracts. You should not take it for granted that your relationships (business, personal or otherwise) are strong enough to face any crisis. Disagreements will arise, especially when the stakes are high and the relationship is between friends and family members, and especially when a close personal relationship is intertwined with a business one.

When you enter into an oral contract, you will fail to discuss items that seem obvious. These are the issues that typically create difficulty in the future when you desire to enforce any oral agreements that have been made. On the other hand, when you enter into a written contract, with the aid of our contracts lawyers, you and each other party involved are cautious enough to include all the details and take into account each contingency. This attention to detail makes later disagreements much less likely. Written contracts are also much easier to enforce in the event a dispute does wind up in court.

A contract, oral or written, is comprised of an offer and acceptance and sometimes, one or more counteroffers. The offer is a statement signifying that a person or business wishes to enter into an agreement on some specific terms and conditions. The acceptance is delivered by the person who accepts the offer on the basis of those exact terms and conditions.

A person may not agree to the exact terms presented in the initial offer and present a “counteroffer” with slightly, or not so slightly, varied terms from the initial offer. Also, it is always wise to make sure the person signing the contract on behalf of the other party is authorized to do so.

Consideration is a required component of a contract. It is the exchange of value pursuant to the contractual relationship. For example, an owner of commercial property provides space to an artist for use as a gallery. The artist becomes obligated to pay 15% of the sales price of each piece of art that she sells to the property owner in exchange for the use of the space. The consideration that is provided by either party should be of value.

Consideration can be anything of value promised by one person to another person when making a contract. Consideration takes the form of money, physical objects, services, promised actions, abstinence from a future action and much more. However, if a person has a pre-existing legal obligation to another party to render a payment, deliver property or take (or refrain from taking) an action, this obligation cannot be consideration in the legal sense. This is known as a “pre-existing duty.” In contracts law, it is a prerequisite that each party to a contract offer some consideration before a contract is binding. It should be noted that even if a court decides that no contract exists for lack of consideration, the aggrieved party may be able to seek recovery under the legal concepts of quantum meruit (sometimes referred to as a quasi-contract) or promissory estoppel.

Both parties entering into the contract must have the mental capacity to contract. Minors and mentally incompetent individuals do not possess such capacity. In most cases, persons who are intoxicated by alcohol or drugs do not lack the capacity to contract. Courts generally rule that those who are voluntarily intoxicated should not be permitted to avoid their contractual obligations, but rather they should take responsibility for the results of their self-induced altered state of mind.

In addition, a contract must have a lawful purpose. As in the above example, the lawful purpose of the contract is that a person is paying an amount of money for a certain space. If, for example, the artist was not an artist but instead a drug dealer selling drugs rather than pieces of art, the contract would then not have a lawful purpose.

New business owners must get into the habit of always using written contracts, especially when it comes to the performance of services for customers and clients. Most new business owners do not have piles of money readily available to pay the high costs of litigation and worse … judgments against them in law suits. The use of a written contract in every circumstance safe-guards against the back-breaking costs of litigation.

When you use written contracts, it is far less likely that you will end up in a courtroom. Persons and organizations with whom you do business will be much more inclined to work with you to find a solution to many issues that arise in the course of business dealings.

Written contracts are for your protection. Use them diligently and those you do business with will understand that you are serious about doing business the right way. Let our Boston-based contracts lawyers assist you with your next contract.

Remedies for a Breach of Contract

Remedies for the breach of a contractual obligation include compensatory remedy where the breaching party is required to pay monies that would have otherwise been gained by the non-breaching party were the contract honored. Less commonly, the remedy for breach of contract is specific performance where the person who entered into the contract and breached its terms is required by the court to carry out or refrain from the specific action he or she initially agreed to.

Written Contracts Required by Law

Some types of contracts are required by law within various jurisdictions to be in writing. For example, Massachusetts General Laws, Chapter 259 (Prevention of Frauds and Perjury), Section 1 states:

Section 1. No action shall be brought: (meaning “The law will not enforce:”)

First, To charge an executor or administrator, or an assignee under an insolvent law of the commonwealth, upon a special promise to answer damages out of his own estate;

Second, To charge a person upon a special promise to answer for the debt, default or misdoings of another;

Third, Upon an agreement made upon consideration of marriage;

Fourth, Upon a contract for the sale of lands, tenements or hereditaments or of any interest in or concerning them; or,

Fifth, Upon an agreement that is not to be performed within one year from the making thereof;

• Unless the promise, contract or agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or by some person thereunto by him lawfully authorized.

Contracts with Minors

Minors, in most states, those persons who have yet to attain the age of 18, lack the capacity to enter into a contract. A minor who signs a contract can either honor the deal or void the contract. There are a few exceptions, however. For example, in most states, a minor cannot void a contract for necessities like food, clothes and lodging. In addition, a minor can void a contract for lack of capacity only while he or she is still under the age of majority. In most states, if a minor turns reaches majority (18) and has not voided the contract, the contract can no longer be voided.

Contracts with the Mentally Incompetent

An individual who lacks mental capacity can void, or have his or her guardian void on his or her behalf, most contracts, except contracts for necessities. In most states, the standard for mental capacity is whether the person understood the meaning and effect of the words comprising the contract or transaction. This is referred to as the “Cognitive” Test.” Some states employ what is referred to as the “Affective Test”: a contract can be voided if one party is unable to act in a reasonable manner and the other party has reason to know of this condition. Other states use the “Motivational Test.” A person’s capacity to contract is measured by his or her ability to judge whether or not to enter into the agreement.

Common Examples of Consideration in Contracts Law

If Adam signs a contract to buy a baseball card signed by Babe Ruth from Brett for $50,000, Adam’s consideration is the $50,000, and Brett’s consideration is the baseball card.

Additionally, if Adam signs a contract with Brett such that Adam will paint Brett’s house for $5,000, Adam’s consideration is the service of painting Brett’s house, and Brett’s consideration is $5,000 paid to Adam.

Further, if Adam signs a contract with Brett such that Adam will not repaint his own house in any other color than blue, and Brett will pay Adam $500 per year to keep up this deal, there is also consideration. Although Adam did not promise to affirmatively do anything, Adam did promise not to do something that he was allowed to do, and so Adam did pass consideration. Adam’s consideration to Brett is the forbearance in painting his own house in a color other than blue, and Brett’s consideration to Adam is $500 per year.

Conversely, if Adam signs a contract to obtain a car from Brett free of charge where Brett’s consideration is still the car, but Adam is giving no consideration – there is no valid contract. This is what we call a gift.

This information refers to contract law in common law jurisdictions of the United States rather than any civil law jurisdiction. The common law retains a high degree of freedom of contract, with parties largely free to set their own terms, whereas civil-law systems typically apply certain over-arching principles to disputes arising out of contract (see, for example the French Civil Code). It is very common for businesses not located in common-law jurisdictions to opt in to the common law through a choice of law clause.