What Constitutes a Contract?
In Texas, as throughout the country, a valid contract can be either oral or written, also known as express. Oral contracts can, by their nature, be trickier to adjudicate since both parties can claim different interpretations of the agreement. Express (written) contracts can also be tricky if the language is ambiguous. When a court hears the case, it is unclear who promised what to whom and when.
That’s why it’s also important to get all your contracts in writing and reviewed or drafted by an experienced business attorney to make sure the details are clear and unambiguous.
That being said, for a contract to be valid, it must have at least four elements. Different legal scholars break down the elements a bit differently, but the four major components of a valid contract are:
OFFER: One party approaches another party with an offer; for instance, to buy or deliver tools to a hardware store, to use our earlier example.
ACCEPTANCE: The other party agrees to the offer.
CONSIDERATION: For providing the services or products contained in the offer, the other party must be given a form of consideration, which could be money (X dollars for the weekly delivery) or an exchange of services. Now, both parties are obligated by the terms of the agreement.
CAPACITY: Each party must have the legal and mental/physical capacity to carry out its obligation. Legal generally means 18 years of age or above, and mental/physical means to be of sound mind when entering into the agreement. A party to the offer cannot be intoxicated or high on drugs or mentally incapacitated to the point of losing judgment. There can also be no coercion or threats involved.
Types of Breaches
A breach occurs when one party fails to live up to its obligation. The provider may fail to deliver services or products as promised, or the other party may fail to live up to its agreement, for instance, to make a timely payment for the product or services. In either case, the breach can be considered either material or immaterial.
A material breach means that one party was harmed and the continuance of the contract has been jeopardized. In our hardware store example, if the supplier suddenly stops delivering the tools, jeopardizing the survival of the store, then a material breach can be said to have occurred.
On the other hand, if the tool supplier tells the hardware store owner that the delivery was delayed because of weather or other unforeseen issues and the delivery will continue the next week, then the breach can be said to be immaterial and is probably not actionable in court.
There is also a type of breach called anticipatory. This means that one party indicates through words or actions that it will not fulfill its obligations under the contract. By declaring an anticipatory breach, the aggrieved party can seek legal action immediately rather than waiting for an actual breach.
Proving Breach of Contract in Court
The best approach in any type of breach is, of course, to try to work matters out through negotiation. When that isn’t possible or fails, there is always the option of legal action. An unambiguously-worded written contract is going to be easier to litigate, but that doesn’t mean an oral contract cannot be enforced. It may just take added steps.
Generally speaking, to prevail in a breach of contract lawsuit, you must show that:
- A valid contract existed;
- You honored your part of the contract;
- The defendant failed to honor their part of the contract; and
- The defendant's breach resulted in you sustaining damages.
If matters do go into litigation, the court may order the breaching party to:
- Fulfill the contract terms as agreed to, known as specific perform
- Pay compensation for the amount lost due to the breach
- Reimburse the other party for expenses and future lost time and money
- Pay compensation for lost reputation on the aggrieved party’s behalf
The court also may:
- Rescind the contract for both parties
- Order restitution, by which both parties return any gains from the contract
The best advice is to confer with an experienced attorney before entering into any contract or agreement to make sure your rights are protected and the terms are clearly spelled out. A breach of contract lawsuit can be complex and challenging, so it’s better to have your bases covered in advance. If a breach or dispute occurs, you should also seek the legal counsel and guidance of your attorney.