In the ancient world, a broken promise was justification for violent reprisals. Civilized society developed a peaceful process of enforcing agreements. Traditional and formal contract laws are simple and cost-effective means to manage transactions. In the United States, contracts define expectations, set boundaries, and streamline business exchanges.
The law firm of Roth Fioretti provides business owners with a variety of business law services, including assistance with drafting and reviewing business, employment, and other types of contracts. We also assist clients with navigating breach of contract claims and litigation and resolving contract disputes. Our attorneys help enforce and protect your rights under contract.
The Basics of Contract Law
A contract is a formal agreement describing an exchange of some kind. Regardless of popular myths, the actual law does not require a contract to exist as a signed physical document. Merely strike a bargain, and courts may interpret your spoken word as binding.
Essential Elements of a Contract
All contracts have three essential elements:
- The Offer – The first party provides this item or service.
- Acceptance – The second party agrees to receive the benefits offered.
- Considerations – Often money, this is the item or service traded by the second party to accept the offer.
An offer can be accepted, reject or countered. You might accept an offer by your actions or by stating that you agree. A signature is not required, except in certain limited circumstances, but courts acknowledge signatures as clear proof of acceptance.
Examples of Contracts
A simple sale of goods qualifies as a contract. One party offers an object that another agrees to buy in exchange for money. Technically, you make a verbal contract with stores every time you shop, but contracts also describe many other complex transactions, for example:
- Employment Contract – It defines employment status, rules, and requirements of a job.
- License Agreement—One party licenses an asset to another party. Typical license agreements involve intellectual property rights, such as trademarks and patents.
- Insurance Contracts – An insurance policy in contract. An insurance company that refuses to pay a claim may be in breach of the contract.
Contracts also describe situations where one party agrees to refrain from a specific activity. Noncompete and nondisclosure agreements are types of employment contracts where the offer limits activity.
Though verbal contracts are enforceable, written contracts are often preferable. These are easier to enforce in court, and complicated terms necessitate carefully worded explanations.
Federal and Illinois Contract Laws
Common Law is a collection of opinions and decisions made by judges, and these traditional interpretations dominated contract laws for centuries. This system still provides the guiding principle for matters involving real estate, employment, and services.
The Federal Arbitration Act
Enacted in 1925, The Federal Arbitration Act clarified alternative contract dispute settlement. Parties may wave their right to costly court trials in favor of arbitration.
The Uniform Commercial Code
Starting in 1952, legal scholars drafted the Uniform Commercial Code to clarify matters concerning sales contracts. With only a few minor exceptions, all states adopted this set of guidelines.
Illinois Breach of Contract Law
Federal laws clarify many issues, but states enforce their own laws. Under the Illinois breach of contract law, a state court or federal court applying state law may rule that a breach occurred if a plaintiff proves the following three elements:
- A contract exists in writing or as a verbal agreement.
- Defendant failed to live up to the terms.
- The plaintiff suffered damages as a result.
In Illinois, plaintiffs have ten years to bring a suit for the breach of a written contract and five years for violation of a verbal contract. The statute of limitations begins to accrue from the time of the breach of contract.
Enforceability of a Contract
In addition to providing a longer statute of limitations, written contracts are also easier to enforce. Clear language defines the terms, and signatures indicate agreement. There are times when even a signed document is not enough to enforce a contract.
Courts may void a contract for any of the following reasons:
- Duress – A party agreed due to threats of violence or intimidation.
- Illegal – A contract is void if it violates any existing state or federal laws.
- Misrepresentation – One party lied or concealed information.
- Misunderstanding – An honest mistake occurred due to poorly stated terms or misinformation.
- Frustration of Contract – Changes in circumstances make it impossible to honor a contract.
Contracts must be made in good faith, and both parties must do their best to fulfill their side of the agreement.
Breach of Contract Litigation
State courts handle most breach of contract cases. You don’t necessarily have to wait for the other party to violate the entire agreement to bring a suit.
Courts recognize four ways to breach a contract:
- Anticipatory – One party announced an intention to violate the contract.
- Actual – The agreement was not upheld, or one side refused to honor the contract.
- Minor – A single clause was violated, but the contract remains in force.
- Major – The entire contract is void, or one party entirely in default.
Successful plaintiffs may receive compensation for the actual damages sustained. In some instances, courts also award additional costs like legal fees, potential lost revenue, and opportunity costs. Although not typical, a court may also order a defendant to perform an act required in the contract.
Though the principles of contract law are universal, each case is unique. If you are uncertain of a contract’s wording or need help drafting an arrangement, consult with the contract attorneys of Roth Fioretti. Our lawyers can also assist with breach of contract litigation, offering representation for both those accused of breach of contract and those suing for damages under breach of contract. Please contact us today to discuss your case.