Understanding Personal Services Contracts (for Creative Professionals)

For many creative professionals and businesses, generating and accepting contracts happens often and in the regular course of business. Understanding a few basics of contract law can be crucial to protecting your interests and overcoming any potential contract issues. Doing so can help facilitate better contract drafting and will help impress upon you the benefits of doing business with some mind towards how to effectively enforce your contracts. (Tip: Sometimes that means going the extra length with your initial contract language).

In this post, we will explore the key elements of a valid contract, what a unilateral performance and service contract is, the legal concept of substantial performance, common breaches, and how careful contract management can help creative professionals avoid "misery or failure points”. While anyone who works with contracts will get something out of this entry, I’ve geared the discussion somewhat towards creative professionals and businesses.

Contract law forms the foundation of legal agreements, providing structure and clarity to business relationships. There is a body of contract law and principles that dates back centuries and many of those concepts still apply to this day. Fundamentally, contract law aims to fairly interpret the intent of the contracting parties, but it also has set forth principles that underscore traditional ideas of fairness like not unjustly enriching a party in cases of non-performance or voiding certain types contracts on public policy grounds.

1. The Basics of Contract Law

A contract is a legally binding agreement between two or more parties that establishes rights and obligations. Or as my GSU College of Law contracts law professor ingrained in our heads, “A contract is a promise to do or not do something.” Simple enough, right? Not quite. A court first decides if a contract is valid by making sure the contract fulfills the following elements. If it fails to meet just one of these elements, a court may deem that particular void or voidable.

The following elements are essential for a valid contract:

a) Offer and Acceptance:

An offer is a proposal by one party to enter into an agreement and the acceptance is the agreement by another party to the terms of the offer.

Example: Sara offers a piece of artwork for $1,000 at a local Arts Festival. Tom agrees to pay the listed price. Sara’s offer and Tom’s acceptance satisfy the “offer and acceptance” element.

b) Consideration:

Consideration refers to something of value exchanged between the parties, such as payment, services, or goods. It has to be something of significant, present value (but not necessarily equal value) and cannot be a gift or empty promise. If not, lack of consideration will invalidate a contract.

Example: Sara offers to paint a mural for Tom’s office as a gift. Tom offers her $500 for it after the fact. Since Sara has already finished the mural (in the past) and intended it as gift, there is no consideration.

c. Mutuality and Assent

Mutuality refers to the idea that both parties are mutually obligated to the promise of the other party. Assent is a similar concept often referred to as “a meeting of the minds”. Mutuality and assent mean the parties understand their mutual obligations to each other and they have willingly and knowingly entered into the terms of the agreement.

2. Services v. Goods Contracts & Understanding Unilateral Performance Contracts

There are two general types of contracts - contracts for goods and contracts for services.

Good contracts are pretty easy to grasp. You contract with someone to deliver a physical good or product for an agreed-upon price or exchange of value. Service contracts just about everything

else - non-physical goods or personal services offered from one party to another.

Creative professionals often engage in personal service contracts just by nature of their profession. Artists and musicians are almost always contracting a personalized, unique set of skills. In these contracts, the performance of the skill or project is often the consideration from one party to the other. Obviously, you can imagine how interpreting a goods contract (with a quantifiable number of goods) would be different from handling a service contract.

You might also hear service contracts referred to as unilateral performance contracts. A unilateral contract is a type of contract where one party makes a promise in exchange for the performance of a specific act by the other party. Importantly, in a unilateral contract, the party making the promise (the buyer) is obligated to fulfill it only when the other party performs the required act or meets the specified condition. So to translate, your client doesn’t owe anything legally until you’ve started or completed your performance - whichever makes more sense under your contract.

What happens if you start but don’t finish your project or performance? Well, depending on your situation, you might be entitled to the entirety of what you’re owed by virtue of simply having started on the project in earnest or you might entitled to the a portion of what you’re owed under the theory of partial performance (i.e. paid for what you’re able to deliver to the client).

Really, it’s just important to understand that your personal service contract is governed by different laws and principles than good contracts. Of course, if you are running a creative online merchandise store or Etsy that sells goods, than the reverse might be true.

3. Breach and Substantial Performance

Most contract breaches can be broken down into two categories: material and minor breaches. There are also instances of anticipatory breach, which I think is probably better saved for another post.

A material breach occurs when a party fails to fulfill a significant term or condition of the contract, depriving the other party of the contract's benefits. The non-breaching party may seek remedies, such as termination, damages, or specific performance. For creatives, a material breach might be one in which the show could not go on, a party fails to meet a critical obligation (like no-showing), or one party drops the ball in a fatal way.

A minor breach by contrast, also known as a partial breach, refers to a failure to perform a minor aspect of the contract. The non-breaching party has a variety of options including accepting partial performance or demanding the other party “cure” the breach in some way. Partial performance might involve delivering less artwork than anticipated or missing an important deadline but still being able to manage some delivery of performance.

For service contracts in particular, it can be difficult to ascertain exactly when a breach goes from minor to material. For instance, if you’re a musical act that contracted for two sets of music, but before the second set an equipment malfunction prevents you from performing, would that constitute a material breach?

For service contracts, the doctrine of substantial performance is used to help resolve these types of contract situations. The doctrine of substantial performance addresses situations where a party has not fully performed all the contractual obligations but perhaps has made a good faith effort to do so. A variety of factors including the good faith behavior of both parties and whether the non-breaching party received a substantial benefit have significant bearing on the application of the substantial performance doctrine.

As to our example above, factors like what caused the malfunction and whether the host buyer received real value from the band’s truncated performance will determine how material or minor the breach may be. Every situation is different, but it’s important to remember that for personal service contracts, an interpretation of breach might not be as black and white as you’d think.

Conclusion

Understanding the basics of contract law can be super helpful for creative professionals to protect their interests and avoid letting minor breaches become material ones.

By grasping the essential elements of a valid contract, recognizing the significance of unilateral performance and services contracts, and understanding substantial performance, creative professionals can proactively manage their contracts and performances in a way that best helps ensure that their contract is valid and honored if an issue ever comes up.

My best advice for creative professionals is to first ensure your contracts are drafted as well as possible to avoid or hedge against any self-inflicted contract issues but then to also to consider concepts like substantial performance for how to manage or consider day-of performances.

Remember, since there is a difference between a material and minor breach, whenever possible do what’s possible to “substantially perform” your contract. Taking this philosophy will help you reach a favorable outcome (even if only partial payment) should you ever need to contest a contract.