Contracts, the Statute of Frauds and Other Considerations

Making contracts is not something to do without professional assistance. The investment of time and money in correcting a mistake can go far beyond the cost of having a valid agreement prepared by an experienced business law attorney. In business as in one’s personal transactions, it is always best to seek the full protection of the law.

Generally, the requirements for a valid contract are an offer, an acceptance, and consideration.  An offeror makes an offer and presents it to the offeree who may accept it, reject it, or make a counteroffer. When an offer or counteroffer is accepted, the contract is made. The outward manifestations and expressions of the parties are looked at to determine the existence of an offer and acceptance. This includes deciding whether there was mutual assent by the parties, i.e., that they essentially agreed to the same thing.

These simple rules are not so simple in real life, and a myriad of disputes can and do arise over the meaning of the foregoing concepts. In Maryland, mutual assent is decided under an objective test. This means that the objective manifestation of one’s words and acts are viewed to determine one’s intent. Thus, if you wanted to say that you would not accept a product that is colored blue, but all of the statements and evidence indicates otherwise, your secret wish will carry no weight.

Every contract also requires consideration, which involves a right, profit, price, or other benefit going to one party, and a forbearance, detriment, loss or responsibility undertaken by the other. Consideration establishes a mutuality of obligation. Such mutuality would not exist if one of the parties, by the terms of the agreement, can decide on its own whether or not to perform the stated promise. This would be an “illusory” promise that contains no consideration.

The Statute of Frauds dictates that certain contracts must be in writing. For example, a contract for the sale or disposition of any interest in real estate must be in writing and signed by the party to be charged or the party’s agent. In addition, the Statute of Frauds requires that the writing identify with sufficient definiteness the subject property and that it sets forth all the terms and conditions of the promises made. Several other statutory provisions deal with the requirement that other types of contracts be in writing.

However, there are exceptions to the writing requirement. One exception, for example, is where there is part performance. Thus, a party cannot escape his or her part of an oral agreement after permitting the other party to partially perform the agreed promise in reliance on the other’s inducements. You cannot stand by as the painter completes 90 percent of the paint job on your home’s interior, and then tell her that you will not pay. The fact that there is no written contract is an ineffective defense in that situation.

Furthermore, where someone is unjustly enriched at another’s expense, he or she may be required to make restitution to the other to prevent an injustice. The unjust enrichment doctrine requires proof that the plaintiff conferred a benefit on the defendant, which the defendant knows or appreciates, and that it would be fundamentally unfair to allow the defendant to keep the benefit without compensating the plaintiff.

A lawsuit for breach of contract must be filed within the time limit of the statute of limitations. For example, a contract for the sale of goods must be commenced within four years in Maryland under the Uniform Commercial Code. If the UCC is not applicable, however, such a contract is governed by the three-year statute of limitations under the Md. Courts and Judicial Proceedings Code, Section 5-101. Generally, the time period begins to run on the date when the breach occurred. However, Maryland recognizes equitable principles and doctrines, such as the discovery rule. The discovery rule says that the time limit does not begin to run until a party knew, or reasonably should have known, of the wrong committed.

For assistance with drafting, interpreting or negotiating contracts, the Law Offices of Elsa W. Smith, LLC stand ready to assist you in the State of Maryland. Contact us today to schedule a consultation in Annapolis (410) 556-0077 or Laurel (301) 358-4340.