Contract Disputes

Generally, people and companies can enter into any deal they wish, and the role of the law is limited to interpreting what the parties' agreement meant, and whether one of the parties breached.  There have been many statutory exceptions to the rule that parties can agree to anything, however.  For example, an employer may not pay an employee less than minimum wage, even if the employee consents; a handyman may not perform home improvement work without a license; and a creditor may not enforce a promise by the debtor that he or she will not file bankruptcy.

Enforcement of Real Estate Contracts

Real estate is the most expensive purchase that most people ever make. Making an impulsive decision to sell or buy is therefore enormously costly. Unless the other party agrees to tear up the contract, the party regretting the decision may find himself stuck. In a seller’s market, buyers have to be careful not to be caught up in the frenzy to enter into an agreement immediately upon viewing the property. The necessity of exercising caution is even more important at an auction, where decisions have to be made in a split second, and auction fever can cause an otherwise disciplined person to forget her firm resolve not to bid more than a certain amount. An auction bid, once accepted, is a binding contract, even if the successful bidder refuses to execute a written memorandum of the contract.  Whether rushed or considered, a written contract to buy real estate can usually be specifically enforced by either party, meaning that a court order can require the breaching party to sell or buy the property. In the alternative, damages for breaching a real estate contract are often extensive.

Under Maryland law, a contract to buy or sell real estate must be in writing to be enforceable. It need not be notarized. The typical residential contract contains various contingencies that must be met before the obligation to complete the sale is final. Commonly found contingencies include the buyer being satisfied with the results of a home inspection, the buyer’s obtaining financing, and the buyer’s selling his or her present home. The time limits associated with the contingencies can be strictly enforced, unless the other party waives them. A waiver should be obtained in writing.

When all contingencies have been satisfied, the obligation to settle on the property becomes fixed. If the seller seeks to avoid settlement, perhaps because he expects a better offer to come through, or the buyer has remorse and attempts to walk away from the deal, the non-breaching party may choose to seek money damages for the losses cause by the breach. For example, a seller may declare the deposit forfeited and, if he is unable to sell for the same price, seek the difference in sales price and associated damages. Similarly, a buyer may have suffered damages from reliance on the availability of the property, the costs of applying for a loan, and similar costs.

The law also presumes that all real estate is unique, however, and permits a party to sue for specific performance. These cases are expedited proceedings. Unless the contract is itself defective, or the breaching party can prove that the plaintiff was not ready to convey or was otherwise in breach of the agreement, a contract can be enforced by a court order to complete the purchase as detailed in the contract. Although buyers are more likely to seek this remedy when a seller reneges on the promise to convey a particular piece of land or building, this remedy is also available to a seller. A court order to convey land can be enforced by contempt proceedings, if necessary.

Enforcement of Business Contracts

Although businesses do not always memorialize their agreements with written contracts, unless they fall within the few exceptions to the rule, oral contracts are enforceable.  The main drawback, as most business owners discover, is that after a dispute arises, people have different recollections of what the deal was.  The disagreement over what the agreement was can make lawsuits more difficult, but it may be the only rational response if an impasse prevents a reasonable settlement.

Drafting contracts for a one-time or an ongoing relationship can be done by the parties, but is often best left to a legal professional who has seen a variety of disputes, and can help the client guard against the risks of breach.  For example, a winning party cannot force the loser to pay its attorney's fees in court unless there is a contractual (or a statutory) provision to that effect.  Similarly, parties cannot be required to resolve their disputes by arbitration unless both sides have consented.  The best time to get consent to either an attorney's fee shift or arbitration is before a dispute arises.

Clientelevision has prepared a number of short guides to commonly asked business law questions.