Wisconsin Contract Law: What Constitutes a Legally Binding Contract?

As a business owner, you probably establish contractual relationships every day. Many of you deal with written contracts quite regularly. However, do you understand the basics of contract law and what makes a contract legally binding? Do you know what to look for when reviewing contracts prepared by the other party or your own attorney that make it a legally binding contract?

Under Wisconsin contract law, legally binding contracts, whether oral or written, require three basic components: offer, acceptance, and consideration. An “offer” requires one party to offer to provide something of value to another party, which is then “accepted” by that other party. “Consideration” is what the two parties are required to exchange with each other as part of the contract. The consideration must be something of value and the consideration must be mutual, that is, both parties must provide something of value under the contract. For example, an agreement whereby one of the parties agrees to pay you $ 1,000.00, without receiving anything in return, is not by definition a contract.

The consideration generally takes the form of money paid in exchange for the provision of goods or services. This is true for multi-million dollar transactions between international conglomerates and when you bring your car in for repair by a mechanic. One corporation agrees to pay millions of dollars for another corporation to develop specific software or some other product, and you pay your mechanic to replace your spark plugs. In any case, there is an offer, acceptance and consideration and therefore a legally binding and enforceable contract. However, keep in mind that legally binding contracts may require consideration other than money, for example when two parties agree to exchange parcels of real estate.

Under Wisconsin contract law, all contracts also come with an implicit duty of “good faith and fair dealing” on the part of both parties to the contract. While it is true that this is a fairly broad phrase, in essence it means that, once an agreement has been reached, both parties have an obligation to make reasonable efforts to fulfill their respective obligations and avoid taking actions that impede the execution of the agreement. contract. .

The parties to the contracts have the right to enforce them in court. Generally, remedies for breach of contract take one of two forms, either specific performance or monetary damages. Specific performance is equitable relief that is most often awarded in cases involving real estate transactions and consists of the Court ordering the offending party to fulfill its obligations, that is, to “specifically perform” the contract.

In most cases, the remedy for breach of contract is monetary damages, usually in the form of “consequential” damages. Consequential damages are those that arise naturally from a party’s breach of a contract and may include the cost of replacing a product that was never delivered, the cost of repairing a defective product, and the resulting loss of profit. However, consequential damages must be “reasonably foreseeable” at the time the contract was created to be recoverable.

With certain exceptions, verbal contracts can be as valid and legally binding as a written contract. As a lawyer, I recommend that, whenever possible, contractual obligations are set out in a written document signed by both parties. As a general rule, the courts are obliged to consider only the written contract itself to interpret the obligations of the parties, unless there is some ambiguity in the contract. In the absence of a written agreement, or when there is ambiguity in a written contract, the court may look to extrinsic evidence, including testimony from the parties, to determine its intent. In other words, the judge or jury will determine the fate of the parties, as opposed to the parties themselves. Therefore, written contracts that clearly define the obligations of the parties are almost always preferable to verbal contracts.

I will close with a suggestion. Never ignore the “boilerplate” language often found at the end of contracts. While these provisions may seem like an afterthought added by attorneys to extend the contract, they are often vitally important, as they specify, among other things, where written notices should be sent (for example, contract termination) in under the contract, where a lawsuit should be filed and the laws of the jurisdiction that will govern the contract. While it is important to review the detailed provisions of the contract, it may be just as important to understand the “standard” provisions at the end of the contract.

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