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03/29/12 It's The Law: Contracts Come In Many Forms

Question: I thought I had a contract with my customer. I started writing but, we ended up making deals by telephone. I did everything I thought I was supposed to, but now he refuses to pay because he claims I do not have a contract. What are your thoughts?

Answer: Your question is rather vague making it difficult to answer. I will provide some general information about contracts and right to payment.

Contracts can be written or oral. Florida statutes can also require contracts to contain specific content or be in writing. For example, a lease of real property for more than one year must be in writing to be enforceable. Failure to meet the requirements of an applicable statute can render the contract void or voidable. That makes it important to get good legal advice when preparing a contract.

Unless a contract is required to be in writing by statute, an oral contract is equally enforceable. The biggest drawback to an oral contract is proving terms or even existence of the agreement. That means you are almost always better off with a written contract as the agreement of the parties.

A contract is created when an offer is accepted and supported by consideration. Consideration can be money, provision of services, change in position and virtually anything of value. At Common Law, courts strictly construed the requirement of consideration to mean something of clear value. Modern courts have been more lenient and have strained to find consideration where a party can show almost any change from that party's pre contract position.

In action for breach of contract, the plaintiff must prove four things; 1) formation of the contract; 2) performance by the person seeking relief; 3) failure of the defendant to perform and 4) damages. The contracting party is entitled to what is known as benefit of the bargain; that means, being placed in the position you would occupy if the contract had been performed. In some cases, that could mean money damages i.e., what it would cost you to obtain performance from another party less what it would have cost you under the contract. In other cases, the law recognizes that money damages may not be sufficient. A contract for purchase of real property is one such example. In those cases, you may also have the option of pursuing a claim for specific performance of the contract, forcing the seller to sell you the property on terms in the contract.

To establish an offer has been accepted, you must show the parties had a meeting of the minds on all essential terms. The agreement must be reasonable definite and unconditional. Although some terms can be implied, such as reasonable time for performance, others are so critical that if they are not in the contract a court will find a contract does not exist. Critical terms include purchase price and description of the item or services being purchased.

When a purported agreement lacks sufficient certainly to be enforceable, all is not necessarily lost. The court can find that the circumstances created an implied contract. An implied contract is a judicial invention to avoid one party taking advantage of the absence of a clear agreement to keep a benefit without paying for it. To succeed on a claim for recovery under an implied contract you must show that you gave a benefit to the defendant, the defendant had knowledge of the benefit, the defendant accepted or retained the benefit and the circumstances make it wrongful for the defendant to retain the benefit without paying fair value for it. The court will then have to determine what fair value is.

An alternative type of implied contract is known as quantum meruit. To succeed on that theory, you must show you performed services or delivered goods to the defendant, with the knowledge or consent of the defendant, and under circumstances in which the parties knew or should have known that compensation should have been paid for the goods or services.

Breach of contract by one party precludes that party from claiming any benefit under the contract. An exception usually is when a breaching party has substantially performed under the contract, but has not fully performed. In that case, the court does not excuse the failure to perform but it also does not want the other party to receive the benefit of what was done without paying for it. The court will determine reasonable value of what was provided and allow a reduction for any additional expense that will paid by the defendant over and above the original contract price to obtain completion of the contract.

The facts and circumstances of every case will affect the outcome. If you are drafting a contract, you are well advised to retain an experienced attorney and draft the agreement with as much specificity as possible. If you are seeking recovery for services or products supplied to another, an experienced attorney will be able to analyze your facts and apply the law to determine what course you should pursue. Avoiding an attorney in a contract situation can prove penny wise and pound foolish.

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