What is a contract? I often get calls from people who want to file a lawsuit for breach of contract but what they have is an agreement and not a contract. Unfortunately, the law doesn’t give much significance to an agreement. A contract on the other hand is an important document and it comes with the power of the courts to enforce it. Though we may not know it, we enter into contracts everyday. When we pick up something at the store we have entered into a contract. The same is true when we call people over the phone to come out and perform services on our homes. This month’s column focuses on the contract and answers some general questions as to how one is formed. More importantly, this column attempts to help some of you protect yourselves better when you reach agreements with other people.
Q: What is the most important rule in negotiating contracts?
A: Get it in writing. The question and answer sound so simple and you probably knew the answer but this is the action most people fail to do when making a deal and they almost always regret it.
Q: I am doing business with a friend/family member. I don’t need to get it in writing with them because I can trust them.
A: Wrong. The courthouse is full of cases dealing with family and friends who have a disagreement over a deal they made together. If you want to keep the friendship – or if you want to keep talking to that great uncle – a written contract is the best insurance policy you can have. You would be surprised at how two people could come away from the same conversation and have such different thoughts about what are the details of the deal.
Q: I don’t want to ask for it in writing because it might make the person angry or make them think that I don’t trust them?
A: The old adage of you shouldn’t sew it if you aren’t going to do it right, comes to mind. Look at it this way. Let’s say you have called out a plumber to repair your faucet. You want the leak fixed. The plumber wants to get paid. The best way for each of you to get what you want is to write it down. A contract protects both sides. Anyone worth doing business with should understand that. If they don’t, you should take your business someplace else.
Q: If I don’t get it in writing, will it be enforceable?
A: This is a complicated question. Here are some general rules. Contracts for services only can be oral. Contract for the sale of goods under $500 can be oral. Contracts for the sale of goods over $500 must be in writing. Also, just about anything having to do with real estate must be in writing as well as anything to do with loaning money. Where these rules get confusing is when you have a combination contract. For example, you hire a plumber to install a whirlpool tub and the plumber is to supply the tub and all of the fixtures. The total contract price is $1600. $600 for the tub and the rest is for the labor. In this case, the service contract is enforceable as an oral agreement but probably not the portion of the contract dealing with the tub.
Q: My friend had an oral agreement for services and after the other party failed to perform, a lawyer stated that nothing could be done. Why was that?
A: Probably because there was no way to prove an oral agreement was made. Just because an oral service agreement is enforceable does not mean you can prove the existence of the agreement. If you are relying on an oral agreement, you better have some witnesses around who can testify as to when the arguement was made and it’s details. In other words, you should have some people present when the deal is struck otherwise it will be your word against theirs those aren’t good odds to take to the courthouse.
Q: I had a written agreement and the other party did not perform. I could hire a lawyer but there is only $1000 in dispute. Won’t I spend more money than that on a lawyer?
A: Probably. The good news is that the law allows the victor in a contract case to collect his or her reasonable attorneys fees. This means that whatever you have to spend trying to collect what you are owed will be paid by the other side, if you win.
Q: I am not owed money under an agreement, I am owed a service and the guy I signed the deal with is the best. Will the court make him perform the work?
A: No. The law says a court can not order someone to perform a contract it is considered a form of government slavery. However, if you have hired someone with a particular skill, the court will order that person to pay the amount necessary to find someone else with that same skill level to perform your job. This is true even if the amount is much higher than your original agreement.
Q. One last question. Do I have to file something with the courthouse to form an enforceable contract?
A. No. All that needs to happen is that an agreement must be made. If the agreement must be in writing, it must be signed by the party who you intend to bind and must state the particulars of the agreement, especially price. Once the pen releases from the paper, you have a contract. The only exception to this rule is the sale of certain types and quantities of goods. In that case, you will need to file some statements with the county. If you deal in the sale of goods on a consistent basis, you should contact an attorney to learn how to preserve your rights.