A written contract documents an agreement between two parties under which both must perform. To form a contract, one party must make an offer to another party. If the second party accepts the offer, both will need to exchange consideration to make the contract legally binding. The legal implications stemming from entering a contract depend on the terms of the contract.
Breach of Contract
Each party to a contract has a duty to perform. If one party performs, and the other party doesn't, the nonperforming party could face legal consequences. Failure to perform under the contract amounts to a breach of the contract. The nonbreaching party can file a lawsuit against the other party to recover damages. "Expectation damages" usually put the nonbreaching party in the position she would have been in had the other party performed.
Level of Breach
If someone entered a contract with you and breached the contract, you must determine the type of breach that occurred. If it's a material breach, you don't have to perform on your end of the contract. A material breach happens when you don't receive the substantial benefit of your bargain. For example, you enter a contract with a construction company to build a restaurant. The construction company leaves a defect in the patio you requested. This example represents a minor breach. You received the substantial benefit of your bargain, the restaurant with a patio. Therefore, you must pay the construction company. However, you can sue the construction company for damages to recover the money it would cost you to have another company fix the patio.
Some contracts provide conditions for performance. They may provide that a party doesn't have a duty to perform unless a certain condition occurs. Therefore, nonperformance doesn't always equal a breach of contract. For example, you might have a property-development business and you contract to sell a building to another company on the condition that the other company finds financing. If the other company tries but fails to obtain financing, this cancels its duty under the contract.
Statute of Frauds
Certain types of contracts must satisfy the statute of frauds before a court will enforce them. A contract satisfies the statute if the parties put the agreement in writing. The person challenging the contract's validity must have signed it, and the document must state the essential terms of the agreement. The following contracts must satisfy the statute of frauds: contracts that can't be performed within one year, those creating an interest in land, an agreement for an estate executor or administrator to pay a decedent’s debts, a contract for the sale of goods for $500 or more, and a suretyship contract. If you enter one of these contracts, put it in writing and make sure the other party signs it.
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