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An Enforceable Agreement
When a contract dispute arises, the first and most important question is whether the parties had an enforceable contract.

Is it a Contract?

Courts look at a number of factors to determine whether an agreement should be enforced. The first line of inquiry is whether the agreement is a contract. To be a valid contract, it must constitute an offer that another party accepted with the existence of a bargained-for exchange.

Contract Defenses
If a contract exists, the court determines whether it should be enforced. In the presence of an adequate defense, the court may decide not to enforce the contract finding it to be void or voidable. The law allows for these determinations to ensure fairness in contractual bargaining and the substance of the contract. A void contract can exist where the contract is so unfair that the court determines that no contract was ever formed. This allows the party who was the victim of the unfairness to cancel or revoke the contract. A voidable contract exists where there is a valid defense (i.e. the lack of capacity to contract; undue influence; duress; misrepresentation; unconscionability; public policy; illegality; and/or mistake).

(Lack of) Capacity

Entering into a contract requires the parties to have legal capacity to contract. This requires a party of sound mind to be over the age of majority. A contract entered into by a minor may be canceled by the minor or their guardian. If it is not canceled within a reasonable time after the minor reaches the age of majority, the contract will be considered ratified, making it binding and enforceable. In order to be of sound mind, the contracting party must be able to understand what he or she is doing when the contract is entered into.

Undue Influence
Undue influence is the improper persuasion that causes a person to enter into an unfair transaction. Many times, the person asserting the undue influence has a relationship to the victim such that they would not be thought to act in a manner that is inconsistent with the victim's welfare.

Duress
Duress occurs when a party to an agreement is induced to enter into the contract by a threat of unlawful or wrongful action, to which they have no reasonable alternative but to agree to the contract.

Misrepresentation
Misrepresentation occurs when there is dishonesty in the bargaining process through: a false statement of fact; the deliberate withholding of information which a party has a duty to disclose; or in undertaking an action that conceals a fact.

Mistake
When both parties to a contract make a mistake as to a basic assumption upon which the contract is based, and which has a material effect upon the agreed exchange, there can be no meeting of the minds and the parties cannot be in agreement. Therefore, a contract can be canceled on the grounds of mutual mistake of fact. However, this can only be done is the mistake relates to facts existing at the time the contract is made. Additionally, the party seeking to avoid the contract must not have contractually assumed the risk of mistake. It is important to denote the difference between a mistake and ignorance. Although a contract may be void because of a mistake, it is not void because a party is ignorant of the terms of a contract. A party who does not read a contract is still charged with knowledge of its contents.

Unconscionability
Many factors go into the unconscionability defense and determining whether the contract terms are fair and whether it was fairly entered into. If the terms of the contract are oppressive or the bargaining process shocks the conscience of the court, the court may strike down the contract as unconscionable. In examining whether a situation is unconscionable, the court will look at the equality of bargaining power, the education of one party over another, whether a party had the opportunity to ask questions or consult an attorney, and whether the contractual pricing is reasonable or excessive.

Public Policy and Illegality
Contracts to engage in illegal or immoral conduct are generally not enforceable. Additionally, a court will not enforce contracts that the violate public policy. The failure of the court to enforce these types of agreements inure to the benefit of the welfare general public.


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FAQ's
Q: What is an offer?
A: An offer is the first step to forming a contract. An offer is any action that creates a reasonable expectation that the offering party is willing to be bound by the proposed terms.

Q: When can you withdraw an offer?
A: As long as no consideration has been paid to hold an offer open, the offering party can withdraw or retract the offer at any time before acceptance.

Q: How is an offer accepted?
A: A party can accept an offer through a clear manifestation by the accepting party to be bound by to the offer. Generally, the acceptance must be communicated to the offering party in the manner proposed by that party.

Q: At what age can someone enter into a contract?
A: In most jurisdictions you must be the age of majority. However, an exception is made if a minor is entering into an agreement for necessities (i.e. food, shelter, clothing, etc.). A contract made by a person under the age of majority is voidable at the will of the minor, or their guardian, as long as the minor remains under the age of majority.

Q: Does a contract have to be in writing?
A: It depends on the subject-matter and length of duration of the contract. Many contracts do not have to be in writing. However, in California some contracts must be in writing pursuant to the Statute of Frauds. According to the Statute of Frauds, the following contracts must be in writing to be enforceable: (1) promises related to interests in land, (2) promises to pay the debt of another, (3) a promise that cannot be performed within a year, (4) contracts creating a joint tenancy, (5) a promise for the sale of goods of $500 or more, and (6) an agreement to arbitrate disputes.

Q: What is a breach of contract?
A: A breach of contract occurs when one party to the contract does not do what they are supposed to under the contract and does not have a legal excuse.

Q: How are damages calculated for a breach of a contract?
A: Damages depend on the breached agreement. If no monetary damages occur as a result of the breach, then the non-breaching party may only be able to claim nominal damages. Where monetary damages can be proven, the non-breaching party is generally entitled to compensatory damages. Compensatory damages, by definition, put the non-breaching party in the position that they would have been but for the breach.

Q: What is specific performance?
A: Specific performance is an equitable remedy requiring a person who has breached a contract to carry out their obligations under the contract. Generally specific performance is only available if the subject of the breached contract is rare and monetary damages would be inadequate compensation.
Resources
Findlaw Corporate Counsel Center, Business Contracts
Provides business contacts and forms by industry.

The UCC or Uniform Commercial Code
The legal code that sets out the rights and obligations of buyers and sellers engaging in commercial transactions. The UCC has been adopted by all states except Louisiana.

U.S. Department of Commerce
This is the department that administers International Trade Law and regulates U.S. exporting.

U.S. Small Business Administration
This Federal agency advises small businesses and provides guidance with respect to small business financing and development.