Elements of an Effective Contract – Part I

By: Jonathan Bromberg, Esq., Bromberg Rosenthal LLC (301) 251-6200
401 North Washington Street, #500, Rockville, MD 20850
(All rights reserved by the author)

The client was upset. “I’ve been a fool. My customer seemed like an honorable guy. He asked me to do a lot of work for him but I didn’t get it writing. Now that he isn’t paying me I guess I can’t sue him, because we don’t have a written contract, can I?” As usual, the answer is maybe.

We enter into many contracts every day. The written contract is only the documentary evidence of the terms of the agreement. An oral contract (except for certain things) is just as enforceable as a written contract. The only problem is proving the terms of the agreement. That is why it is vital to have some written documentation signed by the other party that provides some detail about the terms of the agreement.

Some contracts must be in writing to be enforceable. In particular any contract regarding the sale or transfer of any interest in land or any agreement that is not to be performed within one year of the making of the agreement is not enforceable. That requirement is from the so-called “Statute of Frauds.” (Of course, if the parties agree to carry out the terms of the agreement it makes no difference whether the agreement was written.)

Other statutes require certain agreements to be in writing to be enforceable. For example, the Uniform Commercial Code requires several different types of agreements to be in writing before they can be enforced in a court of law.

There are basic elements to every contract. You need an offer, an acceptance of the offer and “consideration.” The subject matter of the contract must be clear to both sides. For example, if the parties make a mistake about the essence of the contract, it may be overturned. In a famous case in Michigan from 1887, Hiram Walker & Sons agreed to sell a cow (with the wonderful name of “Rose 2d of Aberlone”) to a Mr. T. C. Sherwood. The parties believed that Rose was a barren cow and would not breed. Therefore they entered into a written contract of sale for “five and a half cents per pound less 50 pounds shrinkage” – a total of $80.00 for old Rose.

When Mr. Sherwood came by a week later to get his cow, Mr. Walker refused to deliver her. It turned out that Rose was with calf. As such, she was much more valuable than a barren cow and would command significantly more than five and a half cents a pound. Mr. Sherwood filed suit (an action called “Replevin”) demanding delivery of Rose. The court decided that Hiram Walker did not have to deliver Rose. The Court reasoned that where there is a mutual mistake of a “material fact” a party may refuse to complete a contract or even avoid it after it has been completed. Here the parties mistakenly believed they were dealing with a barren cow when they were actually dealing with a pregnant cow.

In our next article, we will deal with other aspects of contracts including “consideration,” substantial performance, and damages for breach of contract.

If you have any question about your contracts, you should contact your attorney. For further information on this article or other legal matters regarding businesses, feel free to contact Jonathan Bromberg, Esq. at Bromberg Rosenthal LLC (301/251-6200) or by completing the contact form below.