The Importance of Contracts
Written on April 11, 2017
Contracts play a pivotal role in ensuring that companies, employers, employees, and third party service providers are compensated fairly for their goods, labor, or services. For instance, in the event that an agreement is breached, the existence of a written contract can help protect the non-breaching party from suffering economic loss. Forming or enforcing a contract can be difficult and time-consuming, so if you have questions about a contract that you entered into, please call an experienced business law attorney who can protect your interests.
Relief Offered for Failing to Fulfill a Contract
When a party to a contract fails to fulfill agreed-upon obligations, he or she can be held accountable for the breach if there is an existing record of the contract. Breaches could include:
- A failure to perform a contractual duty on time;
- A failure to perform in accordance with the terms of a contract; or
- A failure to perform at all.
Fortunately, even when someone fails to abide by an agreement, contract law offers a form of relief to non-breaching parties in the form of damages. The most commonly awarded damages include:
- Compensatory damages, which are intended to place the non-breaching party in the position that he or she would be in had the breaching party fulfilled his or her end of the contract;
- Punitive damages, which go above and beyond compensatory damages and are intended to punish the breaching party and discourage similar behavior in the future;
- Nominal damages, which are awarded when a breach occurred, but the other party did not actually experience any monetary loss; and
- Liquidated damages, which are included in the contract when it is formed in the event that one of the parties fails to uphold its end of the bargain.
In some rare cases, courts are also willing to order the breaching party to perform the service or exchange as described in the contract. This is known as specific performance and is usually only implemented when the subject matter of the agreement is rare or unique because damages would not be sufficient to place the non-breaching party in the position that he or she would have been in had the other party complied with the terms of the contract. For example, if a person decided to sell a piece of property and later backed out of the deal, a court would be willing to order the owner to go through with the sale. This is because real estate is considered to be unique, since there are no two pieces of property that are exactly the same. However, courts are generally reluctant to order specific performance and if money damages would adequately compensate a non-breaching party, the court will most likely order compensatory damages instead.
In some cases, non-breaching parties are permitted to cancel the contract itself, which voids it and relieves the parties of any obligation. When a non-breaching party has already provided a benefit to the other party, he or she can also receive restitution.
Contracts are legally enforceable and the consequences of failing to comply with the terms of an agreement can be severe. This helps encourage those who enter into agreements to abide by the set terms. It also provides those who enter into a contract with the knowledge that they can collect damages for a breached contract.
Written contracts also ensure that businesses make valid and enforceable agreements. For instance, in order to be considered a valid contract, an agreement must include an offer by one party and an acceptance by another. Additionally, something of value must also be given in return for the promise of the contract’s fulfillment. The agreement must also clearly lay out the terms of the exchange specifically enough that they could be enforced by a judge at a later date. Although a contract does not necessarily need to be written, it is much more difficult to enforce an oral contract than one that is recorded in writing.
By complying with these standards, the contracting parties are more likely to have a clear understanding of the terms or conditions of an agreement and so avoid expensive misunderstandings. This in turn can provide both parties with security and peace of mind. For example, an employment contract should clearly set the terms agreed upon by employers and employees regarding specific duties, responsibilities, and payment. Employers must also comply with the wages and benefits promised in the contract. This protects employees from being taken advantage of and also keeps employers from being falsely accused of wrongdoing. These types of clear cut contracts can help the parties avoid litigation resulting from confusion and breaches, which can also save the parties’ a substantial amount of financial resources. Furthermore, when individuals or entities are aware that there will be severe consequences for breaching a contract, they are often discouraged from entering into contracts that they do not intend to honor.
Forming a valid contract at the outset of a business or employment relationship also helps ensure that smaller companies and employees are shielded from dishonest and unscrupulous business partners and are protected by the language of the contract. Alternatively, contracts can also protect businesses from false claims made by employees, as the employer can turn to the explicit language of the contract to refute certain allegations.
Contact an Experienced Business Law Attorney Today
Contracts provide businesses and individuals with peace of mind as well as legal recourse in the event of a breach. Unfortunately, interpreting and enforcing contracts is difficult and many people are not even aware of the protections offered by contracts. To ensure that you are able to refute false claims or collect compensation from a breaching party, please contact Clearwater Business Law by calling (727) 785-5100. You can also reach a member of our legal team by sending us a brief message containing a short description of your case as well as your contact information. We look forward to helping you with your contract needs.