University of Maryland Extension

Contracts

Author: 
Nicole Cook, B.S., J.D., LL.M., Environmental and Agricultural, Faculty Legal Specialist, Agriculture Law Education Initiative (ALEI), University of Maryland Eastern Shore

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A contract is any agreement (written or oral) where the parties (the people making the agreement) exchange mutual promises in return for some sort of consideration (typically money or a good) or benefit (e.g., a service). Contractual arrangements in agriculture take many forms including financial agreements such as mortgages, insurance policies, leases and license agreements. Many state and federal farm programs are contractual in nature, and the production and sale of farm products is often accomplished and compensated for by contract for future performance and delivery, like a Community Supported Agriculture (CSA) member agreement. Even employment arrangements, although often not written, are treated as contracts.

Most states have what is known as “statutes of frauds,” which require that certain types of agreements be in writing before they can be enforced. Examples of contracts that often must be memorialized in writing to be considered valid are agreements for the sale of real estate and agreements that cannot be performed within one year. The risk in a contractual arrangement is the failure of either party to perform. The legal issue in contracts is their enforceability if one party fails to perform on their promise (“defaults” or “breaches the contract”). Often, contracts specify what constitutes default and the remedies if default occurs. If the contract is unclear, the courts generally employ two types of relief for breach of contract: specific performance and damages. In the case of specific performance, the breaching party is ordered to remedy the default and fulfill the contract. If specific performance is not possible or reasonable, damages are awarded to compensate the offended party. Contractual nonperformance can have ramifications well beyond the scope of the contract itself. For instance, the inability to meet contractual financial obligations to a mortgage lender may result in debt restructuring, foreclosure, or bankruptcy. Deviation from the specification of a production contract may result in the refusal of a contractor to take delivery of the product. Contracts are designed to protect the interests of all parties to the agreement. Performance failure can be a major source of risk and result in severe financial consequences.

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