The Basics of Contract Formation and Breach

The Basics of Contract Formation and Breach

Contracts are excellent tools to safeguard businesses.  Most businesspersons enter into contracts far more often than they realize.  Understanding when a contract is formed and when a breach is eminent is essential to professionalism and business protection. Several misconceptions exist about the formation and breach of contracts.  Understanding the basic contract elements will protect you and your business.

The contract allows each party to create an agreement with fixed rights and duties in accordance with that agreement.  Once a valid contract has been created each party has the security of knowing the courts will enforce a valid contract as it is made unless grounds to bar the enforcement of the contract exists.

A contract can be written in a simple format.  It is true that many contracts are filled with legal terminology, popularly known as “legalese”.  However, a contract does not need to be filled with paragraphs of latin words that boggle the mind and prevent a layman’s understanding of the essence of the contract.  In fact, a clear and simple contract written in plain English is the best way to write a contract for clear understanding of the agreement.  All that is truly essential to the making of an enforceable contract is that:

  • Each party is in agreement.  This means that one party has made an offer and the other party has accepted that offer

  • Something of value has been exchanged for something else of value.  Valuable exchanges can be made with goods, cash or services for something else of value.

In addition, a contract does not have to be written to be enforceable and, therefore susceptible to breach.  Oral contracts are enforceable by a court of law if each contract element is met.  However, the parties must abide by the statute of frauds.  Every state has included a version of the statute of frauds.  Nevada’s statute of frauds is within the various sections of the Nevada Revised Statutes.  The statutes render certain contracts unenforceable unless the terms are set in a written contract. 

Examples include, the sale of goods over $500, agreements with performance after one year of the contract formation, a promise to answer for the debt of another and contracts such as prenuptial agreements.

Although the law states that some oral contracts are enforceable, it serves both parties to put the contract in writing.  Memories often fade with time and miscommunication is more probable when the terms are not written.  Additionally, it is harder to prove breach of contract when the facts and formation of a contract are not put in writing.  In Nevada, the statute of limitations to enforce an oral contract is four years (2 years shorter than the 6 year statute of limitation for a written contract).  Breach of contract can only be claimed before the statute of limitations has expired.

Protect your business by knowing contract basics.  If one of the parties fails to perform any or all promises made, without legal excuse, then a breach of contract will exist. Understanding the formation, terms and promises of the contract will help to enforce the contract and keep those involved from breaching the contract.

If you are having business related issues and would like to seek outside counsel, contact The Las Vegas Business Litigation Lawyers at The Dean Legal Group, 702-823-1354, to schedule a consultation.