The 4 Cs of Contract Law – what are they, and how will they affect your business?
Contract law is a continually changing area – the pace of change has been rapid in recent years because it’s been left untouched for so long. It seems that every time you turn on the news there’s another legal development to worry about says, William D King.
But which ones should you really be concerned about?
So far, the government has only made piecemeal changes to contract law. This means that although many of the old rules still apply, there’s a growing body of case law interpreting those rules in different ways. Over time this could cause significant problems for your business because chances are you’ve breached some kind of contract along the way – whether you knew it or not.
As per William D King, the main change is that courts will be much stricter when assessing whether somebody was following their obligations under a contract. This means they must use more ‘technical’ language and focus on the exact terms used in the contract rather than trying to find out what someone actually meant by it (or what was agreed). As long as both parties have agreed to the same terms, that will be treated as the contractual agreement.
The 4 C’s of Contract Law is a model that was created by the Legal Information Institute at Cornell Law School. The four Cs are; Consideration, Categorization, Consequences and Capacity.
The first ‘C’ is a consideration.
It forms the foundation for most contracts. You can think of it as something of value that is exchanged between the parties. For example, if someone agrees to paint your house for $100, then they are providing you with consideration.
The second ‘C’ is categorization.
When most contracts are created there are broadly 2 types of agreement; bilateral and unilateral. A bilateral agreement is an exchange of promises where each side will offer something and receive something of value. A unilateral agreement is one-sided – where a party will make a promise to do or not do something, an offer to the other party, but it does not require them to provide anything in return.
Unilateral agreements are more difficult because they require consideration, which wasn’t received by the other party. You can think of it as an offer to do something. If the other party does not accept the offer, then there is no contract.
The third ‘C’ is consequences.
This is also pretty straightforward – what will happen if either party should break the terms of the agreement? For example, if you agree that you should pay $100 for home painting, but you do not, then the consequences might be that the contractor will send a bill for $100 + interest. If it’s a very serious breach then punitive damages might also be awarded.
The fourth ‘C’ is capacity.
This refers to whether either party understands what they are agreeing to when the contract is created. In some cases, it might be that one party is not old enough to enter into a contract. Other times, someone might have been forced or coerced into making an agreement when they otherwise would not.
Any of these can cause problems if they are not addressed correctly in your business contracts.
FAQs:
Q: I don’t have a contract – do I really need one?
A: Yes, you probably do, but it doesn’t have to be complicated. If you would like some help creating a contract for your business please contact us. We might even be able to save you money on your commercial insurance premiums!
Q: Do I need a lawyer to make a contract?
A: No of course not. Many people use online resources and templates to create their own contracts – and that’s perfectly ok. If you would like some help please get in touch. It might be the best money you ever spent!
Q: What can we do if one of our commercial clients breaks the terms of their contract?
A: As business professionals, it’s important that you let your solicitor know immediately if this happens. They will be able to advise you on what can be done. If there is a potential claim for breach of contract then early action could save you time and money in the long run.
Conclusion by William D King:
A business contract is a legally binding document. It assumes that both parties are being honest with each other which means your solicitor needs to provide advice on what you are agreeing to even if you have already signed the contract!
