Basics: Contracts!

July 29, 2014

Back to basics today! What is a contract? Well, at its most basic it’s an agreement between two or more parties, where consideration passes between them.

What is consideration? Something tangible or intangible, a promise to do or not do something, or doing or not doing something. Basically, if someone gives something up, however, significant or insignificant it may be or seem to be, it constitutes consideration.

The classic contract involves an offer, acceptance, and consideration. So you offer to pay me money to provide legal services, and I agree to provide those services. We have a contract. For some purposes—like conflicts of interest, for example—we have a completed contract. That means I cannot represent someone else, adverse to you, once the attorney-client relationship is established. Generally, though, your obligation to pay depends on my providing those services; conversely, my obligation to represent you depends on your complying with the payment duty.

Some contracts are executory in nature, which means performance occurs in the future, and depends on both parties fulfilling their duties. Leases are a common example. The landlord must provide space for next 60 months, while the tenant must pay rent. These contracts are enforceable, although bankruptcy provides a means for cancellation by the debtor, whether it is the tenant (more common) or the landlord.

Contracts can be oral or written, although states all have a statute of frauds—name origin unknown—that establishes a class of contracts which must be in writing and signed to be enforceable. In Arizona these include contracts in which someone guarantees another person’s obligations, for which performance will take more than a year, real estate listing agreements, and agreements to sell real estate.

Contracts matter. Read them before you sign them, and get help when you need it. Quick aside:  Many years ago I had a client who appeared with respect to an AIA (American Institute of Architects) contract involving more than $1,000,000 worth of payments to build a custom home. Performance was taking too long. He was unhappy with the contractor, both with respect to delays and other issues. No attorneys involved in the contract drafting, and the AIA contract does not favor the customer. There was not much I could do for him, mostly because of the contract. When I asked him why, with a $1,000,000+ price tag, he had not seen an attorney, he told me it was “just a form” and “just a house.”

Get help with any contracts that matter!


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