The Burton Law Firm, P.C. has over 20 years of experience in this area
of the law. If you have questions about this subject please call us
at 713-222-6262; or email Randy Burton at randy@burton-lawfirm.com
or David Torok at david@burton-lawfirm.com or Hannah Heinz at hannah@burton-lawfirm.com.
Contracts
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What is a contract?
A contract is an agreement between two or more persons (individuals, businesses, organizations or
government agencies) to do, or to refrain from doing, a particular thing in exchange for something
of value. Contracts generally can be written, using formal or informal terms, or entirely verbal. The
terms of the contract - the who, what, where, when, and how of the agreement - define the binding
promises of each party to the contract.
- What are the key elements of a binding contract?
Competent parties, consideration, and mutual assent.
- What is meant by competent parties?
For a contract to be valid, each side must have the capacity to enter into it. Most people and
companies have sufficient legal competency. Minors (e.g., usually those under eighteen) cannot,
generally, enter into a binding contract without parental consent, unless it is for the necessities of
life, such as food, clothing, or for student loan contracts.
- What is consideration?
If the other side is to be held to the contract, you must give up something in exchange. This is called
consideration. Money is the most common form of compensation, but it can also be property, giving
up a right or valid claim, making a promise to do or not to do something, or anything of value.
Agreeing to perform an illegal or illicit act is not consideration and the contract is void.
- What is mutual assent or meeting of the minds?
This means that each side must be clear as to the essential details, rights, and obligations of the
contract. Putting the deal down on paper prior to signing it goes a long way to avoid future
misunderstandings and disputes. Meeting of the minds sometimes can be expressed by words spoken
or gestures made or can be inferred from the surrounding circumstances. There is no meeting of the
minds if: (1) one side is obviously joking or bragging, (2) there is no actual agreement (i.e., the
farmer who is selling a gelding and the buyer thinks the horse is a brood mare), or (3) both sides have
made a material mistake as to the terms or details of the contract.
- What is an offer of a contract?
When you ask someone to do something, or offer to see someone for a price, you are making an
offer. An offer is the first step in forming a contract. The middle step is the other party's acceptance
of the deal. The last step is performance; where you each live up to your side of the bargain.
- Can words, gestures, or actions can signal an offer to enter into a contract and an acceptance?
Yes. If you are forced to make an offer ("your money or life") it is not a valid offer. Similarly if you
are tricked into accepting, it will not be deemed acceptance of the terms offered. To have a binding
obligation on both sides, both sides must approve and accept the terms and conditions of the offer.
Offers remain open until: (1) accepted, (2) rejected, (3) retracted prior to acceptance, (4) countered,
or (5) expired by their own terms. If you reject an offer, you have no contract unless at a later date
a new offer is put on the table.
- What is a counter-offer?
A new set of terms and conditions given in response to the original offer. The difference between
the original offer and the counter-offer may be just one clause in particular or multiple provisions
or the entire contract. You can take back or withdraw an offer at any time before the other side has
agreed to the deal. This is called retraction (proving that you have withdrawn the offer before the
other side accepted may present a problem). On the other hand, changing your mind after you have
signed or agreed precludes retraction. Absent compelling reasons for not holding up to your end of
the bargain, you will be a party to a contract.
- What are the typical forms of acceptance?
Usually, acceptance can be express, conditional or implied.
- What is express acceptance?
A direct and absolute outward manifestation of agreement, such as, "I accept your offer."
- What is an implied acceptance?
The acts of the parties show that the offer has been accepted, such as when both parties to a contract
begin to perform the terms of the contract.
- What is meant by conditional acceptance?
Acceptance is conditional on the happening of something, such as, "I accept your offer so long as
you trim my tree in the next two days." By its terms, a conditional acceptance is a counter-offer.
- Must a contract be in writing?
That depends primarily on the nature and subject matter of the contract. As a general rule, however,
it is wiser to have the terms written in understandable language and plain English to save future
misinterpretations and errors.
- What is meant by Statute of Frauds?
Most states have laws (called "Statute of Frauds") listing the types of contracts that must be written
in order to be enforceable. The purpose of the Statute of Frauds is to prevent fraudulent claims from
arising. Although the laws vary from state-to-state, the most common examples of contracts that
generally must be in writing are: (1) sales of real property; (2) promises to pay someone's debt
obligations; (3) a contract that takes longer than one year to complete; (4) real property leases that
run for more than a year; (5) contracts for an amount or other consideration that exceeds the state's
threshold; (6) a contract that will go beyond the lifetime of the one performing the contract; and (7)
the transfer of property upon the death of the party performing the contract.
- What is I do not comply with the Statute of Frauds?
If you agree verbally to a type of contract listed in your state's Statute of Frauds without getting the
agreement in writing, the contract is not enforceable, although there are some exceptions.
- What about “contracts” printed in small type on the back of forms and airline tickets?
Many courts have been allowing these so called "contracts of adhesion" or "take it or leave it" to be
binding. Except where they are "manifestly unfair" or "unreasonable", or violate some states' specific
law or public policy, the small print may be just as binding as the larger print.
- Does a contract have to be notarized?
Typically no. A notary public (or simply "notary") provides an acknowledgment that the signature
appearing on the document is that of the person whose signature it purports to be. There is a
requirement that some documents be notarized, such as a real property deed. Unless specifically
required by state or municipal law, a contract does not have to be acknowledged before a notary
public.
- What is the performance of a contract?
Performance is actually completing the deal according to the terms given in the contract. Both parties
must live up to their end of the bargain in the contract to have closure. In other words, until both
parties have properly performed under the contract, the contract remains open.
- When does a breach of contract occur?
If one side fails to stick to her/her/its part of the bargain, there is a breach. A breach occurs when:
one party to a contract makes it impossible for the other parties to the contract to perform; a party
to the contract does something against the intent of the contract; or a party absolutely refuses to
perform the contract.
- Does every breach void the contract?
Not all breaches of contract are necessarily "contract killers" which would end up in a lawsuit. Much
would depend on whether the breach is "material" or "immaterial" and who the parties are. If the
breach is immaterial, you may have the option to: ignore or excuse the defect and continue on as if
nothing occurred, point out the problem to the responsible side and give it/she/him an opportunity
to fix it, refuse to pay anything more until it is fixed, or correct the work yourself and deduct the cost
from any payment.
- What are my remedies in the event there is a breach?
You may have a choice of remedies such as compensatory damages, consequential or incidental
damages, costs, attorney’s fees, liquidated damages, recision, specific performance, reformation, and
punitive damages.
- What is meant by compensatory damages?
Money to reimburse you for costs to compensate for your loss.
- What are consequential and incidental damages?
Money for losses caused by the breach that were foreseeable. Foreseeable damages means that each
side reasonably knew that, at the time of the contract, there would be potential losses if there was
a breach.
- When can I get attorney fees and costs?
These are only recoverable if expressly provided for in the contract.
- What are liquidated damages?
These are damages specified in the contract that would be payable if there is a fraud.
- What is specific performance?
A court order requiring performance exactly as specified in the contract. This remedy is rare, except
in real estate transactions and other unique property, as the courts do not want to get involved with
monitoring performance.
- What are punitive damages?
This is money given to punish a person who acted in an offensive and egregious manner in an effort
to deter the person and others from repeated occurrences of the wrongdoing. You generally cannot
collect punitive damages in contract cases.
- What happens with rescission?
The contract is canceled and both sides are excused from further performance and any money
advanced is returned.
- What happens with reformation?
The terms of the contract are changed to reflect what the parties actually intended.
- What are the defenses to a claimed breach of contract?
There are many valid defenses that can be raised to a claim of breach of a contract; depending upon
the particular facts and circumstances of the contract and the actions of the parties. The more
common defenses to a breach of contract claim are: (1)one side was not competent to enter into the
contract, either due to age or mental illness; (2) one side really never provided any form of
"consideration"; (3) one side was under pressure and duress or other undue influence to sign; (4) one
side engaged in "fraud" to procure the contract; (5) one side prevented the other from fulfilling
its/her/his end of the bargain; (6) the original contract was changed with the agreement of all parties;
(7) there was a mistake of fact or mistake of law prior to signing the contract; (8) the contract has
an illegal purpose or act; (9) something happened, through no fault of either side, making the duties
under the contract impossible to perform; and (10) the side claiming the breach accepted the
performance without claiming a breach had occurred.
- Can I change my mind after entering a contract?
That largely depends on the nature of the contract. As a practical matter, many local businesses will
have "return" policies that permit a buyer to return unused merchandise within a certain time for a
full return with no questions asked. Some states have laws giving consumers the right to return
merchandise within 7 to 14 days, unless the store predominately posts a "No Return" or "Final Sale"
notice. If the contract involves home repairs, you also have the right to change your mind, typically
within 72 hours from signing the contract. The Federal Trade Commission and many states also have
"cooling-off" laws involving major purchases.
- What is a release?
A release is a type of contract in which you agree that you have no claims of any type against the
party named in the release.
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