Contracts and Agreements

Guide to How Contracts and Agreements Work in the United States

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What is a contract?

You have probably agreed to thousands of contracts, perhaps without even realizing it. Any time you visit a website, you are agreeing to their terms of service. And every purchase of a product is also effectively a contract.

A contract is simply an agreement between 2 or more parties that is enforceable in a court of law. This is not necessarily a formal document that says “Contract” or “Agreement” or even a document at all. You can have a “verbal agreement” (technically called an “oral agreement”) simply by speaking with someone and agreeing to something, which may also be considered a contract. However, contracts that are not at least written down in some form are much less likely to be enforced by a court. Even emails can be pretty good evidence of a contract; although the most enforceable contracts are a formal document signed by all parties.

These situations really depend on the specific circumstances, so definitely talk to a lawyer for help on this.

Are all contracts enforceable in court?

No. To be legally enforceable, an agreement must be an exchange of some sort, where each of the parties “gives up” something. For example, when you agree to buy supplies from someone, you are giving up some money, and the seller is giving up their supplies.

If only one of the parties agrees to do something, this is generally not enforceable. For example, if you promise you will buy a certain amount of supplies from a supplier, but the supplier says nothing, or does not clearly agree to sell you these supplies, you probably do not have a binding contract.

In addition, both parties must clearly have a “meeting of the minds” in that they both were generally on the same page about the deal.

Also, provisions or clauses in a contract can be unenforceable for other reasons, such as that they violate certain laws. For example, in some states, “non compete” agreements are generally illegal. So if a contract includes a non compete provision, that provision is unenforceable in these states.

If I didn’t sign anything, there’s no agreement, right?

No, that’s not necessarily true. Contracts do not necessarily need to be signed, and as discussed above, don’t even necessarily need to be in writing. It is easier to enforce in court if it is in writing and signed, but even if it’s solely a verbal agreement, you may still have a contract that you are legally required to follow.

Also if the parties have started “performing” on a deal, there may be an implied contract.

Check with a lawyer regarding your situation.

What is a “handshake deal”?

A handshake deal usually just means an “oral agreement” (aka “verbal agreement”), which may or may not be enforceable. Shaking hands does not necessarily make the agreement any more or less enforceable, but it could potentially help to show that both sides had a “meeting of the minds.”

I signed a contract but now I changed my mind. What are my options?

There may be a “cooling off” period by law that is applicable to your specific transaction. But whether or not there is a cooling off period, there is always the possibility of cancelling or terminating any agreement or contract you enter into, at any time, but there is often a cost associated with this (sometimes a “termination fee” or “cancellation fee.”) Check your contract for this provision – it’s often called a section called “termination” (but if the contract says nothing about this then you will need to negotiate this with the other parties to the contract).

You may also have a right to cancel a contract if:

  • the other party lied about a substantial aspect of the transaction (and you can prove it),
  • you gave consent by mistake or under extreme pressure (and you can prove it),
  • the agreement falls through for some reason not that was not your fault (…and yes you must prove it)

Can I (or the other party) get out of a contract due to an unforeseen event?

Many contracts have an “Act of God” aka “Force Majeure” clause, which means that if some kind of catastrophe, disaster, or other extraordinary event, such as war, pandemic, etc. occurs that makes the contract impossible, both parties are excused from performing their obligations. Yes, this almost certainly includes COVID-19 (Coronavirus).

Even if the contract does not have this clause, the doctrine of “impossibility” means that the parties may be excused from performance.

This would mean, for example, if you have a contract for an event, and you paid a deposit, even a “non-refundable” deposit, you can likely get that deposit back if the event cannot be held.

How do I enforce a contract?

If the other party to a contract is not doing what they agreed to do, or has violated the agreement in a significant way, this is called a “breach of contract.” You can start out by simply declaring to them that they have breached the agreement and you intend to enforce it. If they don’t comply, then you may want to file a lawsuit against them.

Importantly, you must be able to prove your claims to the court. In the case of a “handshake deal” or “oral agreement,” you may need to prove that there was a binding agreement in the first place (unless the other party concedes this). This can be difficult unless you have witnesses or circumstantial evidence of some kind.

To sue for relatively small amounts of money, you can use “small claims court.” Depending on the state, this is usually up to $5000-$10,000.

Can a Contract be Enforced Against a Minor (Person Who is Under 18)?

While a person who is under 18 years old can enter into contracts, they can simply cancel, void, or disaffirm any contract they sign, at their discretion. So it is often difficult to enforce contracts against minors.

What are common types of contract clauses?

Here are some frequently used contract provisions (often called “boilerplate”):

  • Limitation of liability
  • Indemnification
  • Merger clause (aka “integration clause” or “Entire Agreement”)
  • Assignment
  • Severability
  • Survival
  • Arbitration

What is a “limitation of liability” clause?

A “Limited liability clause” in a contract generally stipulates that the amount of money to be recovered in a lawsuit is limited to a certain amount (often the amount of fees paid).

What is indemnification or indemnity?

A common clause in a contract is an “indemnification clause.” It’s best to use an example to explain the concept. Let’s say you are contracting with Maria to run an event for your company. If the contract states that Maria will “indemnify” you, this means that if you get sued by one of the attendees because of something Maria did, Maria will compensate you for any loss from that lawsuit.

What is a “merger” (or “integration” or “Entire Agreement”) clause?

A merger clause means that the document supersedes or replaces any and all prior agreements, whether written or oral/verbal.

What is an “assignment” or “no assignment” clause?

An assignment clause stipulates whether or not a party to the agreement can “assign” or transfer their contractual benefits or obligations to any other person.

What is a “severability” clause?

A severability clause states that if a court later determines that any particular provisions in the contract are unenforceable for whatever reason, the rest of the document is “severed” from those such that the enforceable parts remain in force.

What is a “survival” clause?

A survivor clause provides that certain specified provisions of the contract will “survive” after the contract terminates. For example, if there is a confidentiality provision in the contract, the parties to the contract may want to ensure that sensitive information is kept confidential, even after the contract and relationship is terminated.

What is an arbitration clause?

An arbitration clause or arbitration agreement generally means that if either party wants to sue the other over the contract, they must do so in arbitration rather than court. See more at our Guide to Arbitration and other Alternative Dispute Resolution.

Resources

How can I get a contract drafted?

For affordable customized contracts, we personally recommend Rocket Lawyer.1NOTE: Law Soup LLC may receive compensation from Rocket Lawyer if you use any of their services. We stand by every company we endorse.  Your purchases from these companies through our links help keep us around to provide you with free legal info! Thank you.

How much does it cost to get a contract drafted?

Getting a contract drafted can cost as little as $40 with Rocket Lawyer, or to hire a lawyer usually would cost $200 – $1000+, depending on what type of contract it is, and how many pages.

How much does it cost to get a contract reviewed?

It generally depends on how many pages, but Rocket Lawyer would generally do it for about $50, and a lawyer would probably charge $150 – $500+.

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