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Understand a contract in order to avoid a breach

Every day, New Jersey residents make informal agreements with each other. Whether they are deciding where to meet for lunch or choosing who will run an errand, they make decisions that bind some to action and some to potential payment. Do these commonplace decisions constitute contracts?

The business world is somewhat different. In business, many contracts are formal and written out for review. They are modified at the will of the parties until they represent the best possible agreement the contracting parties can achieve. Does writing a contract make it any stronger than a verbal commitment to a friend?

In friendship and in business, agreements often fall through. This can lead to consequences ranging from hurt feelings to lost revenue. To understand how a contract may be breached one must understand the basic elements of a contract.

A contract starts with an offer. A person or entity effectively agrees to do or not do something, and that action or omission can be almost anything. In exchange for doing or not doing the action, the party expects some sort of payment. This exchange or payment is called consideration.

Another party must accept the first party's offer to make a contract. A person does not make a contract with himself, and the second party's offer must be clear and address the terms of the offer and consideration. Once an offer has been made and acceptance has been achieved, the parties must agree to all terms or have mutuality for the contract to be binding.

Breaches of contract can happen when problems arise at the offer, consideration, acceptance or mutuality phases of creation. Taking care to ensure that contracting parties understand each other's expectations can help avoid problems down the road. Attorneys who practice business law can help their clients create solid contracts that anticipate problems and avoid situations of breach.

Source: University of New Mexico Judicial Education Center, "Elements of a Contract," accessed Sept. 30, 2014

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