Myth-Busting: Common Myths About Contracts

Contracts play a critical role in protecting your business and yourself. Whether it is signing new employees, starting a new business, getting married, or subscribing to a new phone service, contracts are an essential part of daily life. Despite the abundance of contracts, a variety of myths still surround them that can affect their validity and your position as an employee, as a consumer, or as a business. The following information will bust the most commonly heard myths about contracts that you may unknowingly believe yourself.

What is a contract?

Before getting into the common myths about contracts, it is important to understand what a contract is. A contract is a promise or set of promises for the breach of which the law gives a remedy. So, what are the most common contract myths?

10 Most Common Contract Myths:

1.     A contract is only valid if it is signed.

Somewhat of a Myth. Not all contracts need a signature to be valid. Some contracts can be verbal or even expressed through a handshake in business practices. Intention to create a contract can be proven by the conduct of the parties even if a formal written agreement has not been signed.

There are some kinds of contracts that need signatures — contracts that fall under the “Statute of Frauds.” Some examples of these types of contracts are: contracts that include terms that cannot be performed within one year; contracts for the sale of land; and contracts formed in the consideration of marriage (ex: prenups).

2.     A contract is written and signed, so it is valid.

Myth. Even if a contract is written and signed, it still may not be valid. A contract’s terms must be fair in order to be considered legally binding. If it is not, a contract can be legally challenged in court. If you are unsure whether the terms of your contract are fair, it is important to seek legal advice.

3.     Context surrounding the contract can help explain a conflict.

Myth. The most important part of a contract are the terms written. In most instances, the judge will not take into account any argument or verbal agreement outside of what is written in the contract. There is a belief that when parties adopt a written contract, it is reasonable to assume that they have incorporated all the terms of their agreement in writing. So, make sure that you or your attorney include all the terms you agreed to in the contract before signing.

4.     Contracts should be full of complicated “legal jargon.”

Myth. We have all seen the overly complicated contracts that are full of legal jargon and unnecessary “legalese” that is hard to understand. Not all contracts need to be such complicated agreements. Contracts just need to be clear, concise, and address all the relevant terms of the agreement.

5.     I trust the other party; I do not need to write a contract.

Although we wish the world was this kind, every lawyer has heard these words said by a client who ended up regretting it later.

Without a written contract, your rights will be harder to enforce, and the terms of the contract (ex: price, duration, payment, etc.) will be harder to prove. Having a contract in place will more times than not benefit yourself or your business.

6.     Even though I did not accept how they wanted me to, I accepted their offer, so we have a contract!

Myth. If an offer states the time, place, or manner in which you need to accept the contract, it must be complied with in order to create a contract. If you do not accept in the manner in which the offeror provides, you may not have an enforceable contract. Likewise, if you turn down the offer and later change your mind and want to accept, you have terminated the original agreement, and there is no contract.

7.     Parties are bound to the terms of the contract.

Somewhat of a myth. This is true, generally, but contract terms that violate the law will not be enforced. Examples of these kinds of contracts include: terms that are against public policy; terms that are impossible to perform; terms that would cause a party to go to extreme hardship or expense to perform; contracts that are against the law (ex: contracts to buy/sell drugs); and contracts that violate licensing statutes (ex: practicing law without a license/degree). If you are unsure whether the terms of your contract can be enforced, it is important to seek legal advice.

8.     The other party can change the terms of the contract.

Somewhat of a myth. A party cannot make a new contract and promise to do what they were already legally obligated to do. For example, a party cannot make a new agreement asking for more money to perform the same duty under an existing contract. An exception to this would be modifying the contract where neither party has fully performed their duty under the contract.

9.     Anyone can enter into a contract.

Myth. There are certain people who do not have the capacity to enter a contract. These people include: those under the age of 18; those who are mentally incapable of reasonably understanding a contract due to mental illness or disease; and in some circumstances, people who are intoxicated.

10.  Parties can hide unfair terms in the fine print.

Myth. While it is expected that you read everything in the contract before signing, parties cannot use fine print to hide terms that are “unconscionable.” This means that the term is so unfair or one-sided that it would shock the conscious of the court. If you are unsure whether the terms of your contract are unconscionable, it is important to seek legal advice.

Contracts are used all around us, but there are complex rules surrounding them. An expert attorney can help draft, refine, review, and defend your contract in order to serve your needs.