When most people think about contracts, the first thing that comes to mind is normally a big document that is filled with a lot of “legal stuff”.  But if you own or run a business, it’s one of the most important tools you have to making sure things move forward predictably.

A contract is a mutually agreed upon promise by two or more parties for consideration.  “Consideration” here normally means money, but can mean something that is valuable to the parties going into a contract.

Contracts occur all the time in the real world except that we may not realize you are in a contract.  When you order a pizza from your favorite restaurant, you and the restaurant are making a promise that if the restaurant makes you a pizza with your specifications, you will agree to pay restaurant when you pick up or the pizza.

For businesses, a contract really gives an opportunity to make sure that commitments are handled in an orderly manner and to make sure there are no misunderstandings.  In fact, there needs to be “a meeting of the minds” in every contract.  If something does not look like it was promised to, then the contract should not be signed.

Written Contracts

Under California Civil Code Section 1624, there are certain times when a contract needs to be written on paper:

• Work that cannot be completed within a year;
• Taking on a debt for someone;
• A sale more than $500.00; and
• A purchase of real property or lease of real property.

That said, most businesses should engage in the habit of written contracts that are signed by both parties in every transaction to make sure that there is evidence of an agreement.

Verbal Contracts

Verbal contracts are considered legal contracts, especially if one of the parties has already start doing some of the things they promised.  An impartial witness is often helpful to show that the agreement was made.

Breaching a Contract

When one party of a contract does not do what was promised, it’s called a “breach of contract”.  If they do something that stops the work promised in the contract from moving forward, it’s called a “material breach of contract”. 

When you have a material breach and cannot get the other party to fulfill their part of the bargain, you can take them to court for litigation to help resolve the situation.  Generally in these situations, you may be asked to show the documents and communications you have had with the other party to show that you tried to solve it without going to litigation.

Damages in a Contract

The law generally does not permit a “windfall” in a contract case.  The court will want to see if they can put both parties back to the original position prior to the contract.  However, if the contract has a duty/damages clause, a party who has been hurt by the actions of the other side,  claims for damages due to loss of reputation and goodwill could be made.  For example, if you are a social media personality that is advertising for a clothing line and you start making remarks that damages the branding of the clothing line, you may have to pay money for those damages and customer goodwill.

If you need support on your contract matter, please feel free to click below to book an appointment with Paxterra Law!

All articles presented on this website are considered general information should not be construed as legal advice. No attorney/client relationship is established or intended from simply reading this article.