WHAT IS A CONTRACT?
By
D. Reed Freeman, Jr.
Arent Fox Kintner Plotkin & Kahn, PLLC
A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of mutual promises (in legal terminology, "consideration"). The promises made by the parties define the rights and obligations of the parties.
Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party doesn't ("breaches the contract"), the nonbreaching party is entitled to receive relief through the courts.
Example: Developer promised to pay Graphic Designer $5000 for creating certain promotional materials for Developer's multimedia work. Graphic Designer created the materials and delivered them to Developer, as required in the contract. Developer admits that the materials meet the contract specifications. If Developer does not pay Graphic Designer, Graphic Designer can go to court and get a judgment against Developer for breach of contract.
Generally, the nonbreaching party's remedy for breach of contract is money damages that will put the nonbreaching party in the position it would have enjoyed if the contract had been performed. Under special circumstances, a court will order the breaching party to perform its contractual obligations.
Because contracts are enforceable, parties who enter into contracts can rely on contracts in structuring their business relationships.
Example: Developer entered into a contract with Composer, promising to pay Composer $4000 for composing a brief composition for Developer's multimedia work. Shortly after Composer started work on the piece for Developer - before Developer paid Composer any money - Composer got an offer from a movie studio to compose all the music for a movie and abandoned Developer's project. Developer had to pay another composer $6000 to do the work that Composer had contracted to do. Developer can sue Composer and obtain a judgment against Composer for $2000 (the amount that will result in Developer's obtaining the music for a net cost of $4000, the contract price).
In this country and most others, businesses have significant flexibility in setting the terms of their contracts. Contracts are, in a sense, private law created by the agreement of the parties. The rights and obligations of the parties are determined by the contract's terms, subject to limits imposed by relevant statutes.
Example: Developer promised to pay Composer $5000 to create music for Developer's multimedia training work. Composer created the music and delivered it to Developer, as required in the contract. Developer did not pay Composer, so Composer sued Developer for breach of contract. Developer's defense was "Composer did what she promised to do, but I never should have agreed to pay her $5000 for that work. $2000 is a fair price." The court will enforce Developer's promise to pay Composer $5000.
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What is a Contract • Written Contracts • Offer And Acceptance • Consideration
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