Business Law

Business Contracts

Written Contracts are Necessary

Business contracts can be helpful tools or burdensome constraints depending upon how they are drafted. If it is important to:

Accurately and completely state an agreement or understanding in order to avoid misunderstandings, disputes and unintended consequences

Make sure an agreement is enforceable, and

Provide a mechanism, other than a lawsuit, for resolving disputes should they arise.

The business law attorneys at Platt & Westby draft, enforce and defend business contracts in virtually all areas of civil law. We are highly capable at negotiating and drafting contracts and agreements; litigation of contract performance disputes, and evaluation of the appropriate remedies for breached contracts.

Before an attorney can draft any agreement or contract, he or she must first listen and then question. When your attorney is as familiar with the facts and goals of the contract as you are, then he or she will be able to suggest additions, deletions, or changes and prepare a working draft agreement that will meet your needs and protect your interests.

GENERAL PRINCIPLES OF CONTRACT LAW

This is a review of principles of contract law. Suits for breach of or enforcement of contractual duties comprise one of the largest areas of civil litigation. A contract is an agreement between two or more parties to "perform" certain obligations. These obligations to perform are duties that each party owes to the other. For example, in a purchase contract, A agrees to give B possession of certain property in exchange for B’s agreement to pay A the purchase price. If A gives B the property, B has a duty to pay A the purchase price. Breach of contract occurs when one party fails to perform his duty. The first party to fail to perform is in breach and that breach excuses the other from his duty to perform. If A fails to give B the property, A is in breach and B does not have to pay A.

Depending upon the facts, when a contract is breached the party not in breach may or may not have a claim for damages. If A breaches but B can turn to another to make the purchase, he must do so. If it costs B more money to make the purchase, B has mitigated his damages and has a claim against A for contract damages only for increased costs. If B cannot make a suitable substitute purchase, he may have a cause to force A to perform the duty and/or may have a claim for additional incidental and consequential damages for delay and loss of profits. But these incidental and consequential damages must have been reasonably foreseeable to the parties at the time they agreed to the contract. Often incidental and consequential damages are not foreseeable either as to their nature or extent, so if one party believes they might become damaged by a breach, a contractual remedy must have been provided. Typically this takes the form of a deposit or performance bond which is to be forfeited upon breach.

Because courts have limited abilities to monitor performance they prefer to award money damages instead of ordering performance. Therefore the parties to a contract ordinarily cannot sue to enforce the contract. Furthermore if A can sell to another party for more than the agreed upon price, his breach is viewed as "economical." Regardless parties generally are free to breach at the risk that they will not be able to negotiate damages for breach and come out ahead. If a settlement is not negotiated, damages become the issue for trial. Specific performance may be requested when the object of a purchase agreement is so unique that a substitute is not available. When the object is unique, B must elect to mitigate if possible and as best he can and sue for damages or sue for specific performance. Either way B may be entitled to reasonably foreseeable incidental and consequential damages. Real Estate is one example of property which may be the subject of suit for specific performance. But the obligation to perform services even if unique is rarely the subject of a judgment for breach of contract.

If A breaches, B usually must give A timely notice and an opportunity to cure. A good example of this is when the property does not conform to certain standards. If the property was shipped to B and upon arrival was found to be defective, B must timely notify A of the discrepancy, preserve and allow A to offer to inspect the goods and make a decision about an offer to cure. As an example of permissible cures, A can offer to take the goods back and/or ship new goods or can negotiate over a lower price to accept the defective goods. But beware. The time in which to give notice may be significantly restricted in the contract. For example in most real estate purchase contracts, baring A’s failure to disclose certain hidden "latent defects," B must conduct an inspection of the real estate and give A notice of the defects "found" within as little as 10 days from the date the contract was signed. Generally B must retain an expert at his own expense to conduct an inspection and render a report within that 10 day period to preserve his right to claim a breach by A. And B’s right to reject A’s offers to cure may also be challenged by A as unreasonable. Since the loss of B’s earnest money is at stake, expert legal counsel to weigh the pros and cons may be required to help B with his decision on whether or not to reject A’s offers to cure. Therefore the amount of money placed into escrow should be as small as possible to avoid raising the stakes.

Contact our office to speak with an experienced Arizona business law attorney at Platt & Westby.