Now that you’re an adult, you can enter into a contract. A contract is a binding legal agreement between two or more people or entities that creates a legal duty or responsibility. Examples of a contract include a loan agreement for school, a rental agreement for a car, an employment contract, or an agreement for medical care. 

A legally enforceable contract must contain some key ingredients:

• Offer and acceptance – both sides must agree to the contract;
• Consideration – both sides must give something to the other side, or give up something that they have a right to own or do;
• A meeting of the minds – both sides must share an understanding of the agreement they are making; and
• Legal capacity (competency) – both sides must have the ability to enter into a contract.

What should I do before signing a contract?

• Read it! Don’t assume just because it is printed out that it is a good contract, and don’t feel pressured to sign something you don’t understand. If you don’t understand the terms, ask for help;
• Cross out parts you don’t agree with, cross out blank spaces, write in anything missing, initial all changes, and have the other party initial as well;
• Date the contract if you’re going to sign it and to use your full name when signing; and
• Double-check that all pages are numbered and that you have reviewed every page.

If a contract is simply an agreement between two people, does it have to be in writing? 

Sometimes! Under Texas law, certain contracts must be in writing, such as:

• The sale of real estate;
• Contracts that will not be fully performed within one year;
• The sale of goods worth more than $500.00; and
• Marriage contracts.

Even if a written contract isn’t required, it is always a good idea to have a written agreement as it protects against dishonesty (future lying about a prior agreement) and poor memories. A written agreement doesn’t have to be complex and can even be handwritten.

Circumstances regarding my ability to comply with the terms of the contract have changed. What happens if I simply choose not to follow the terms of the contract anymore? 

If you do not follow through with your obligations (responsibilities) under a contract, you are in breach of the contract. If a party doesn’t do what they agreed to in a contract, this could lead to legal troubles, including a potential lawsuit that could force you to pay the other party or that could force you to comply with the contract, among other potential outcomes.

In addition to having a court judgment issued against you or incurring penalties, breach of contract could also result in having your credit damaged. 

How can I get out of the contract?

To avoid getting penalized for violating a contract, it is important to have a clear understanding of how that contract will end. The most common way to terminate a contract is simply by expiration. Contracts with a stated, limited time expire at the end of the stated time (unless the contract allows parties to renew or extend its terms). For example, if a person is hired to work for 60 days, the contract concludes at the end of those 60 days. Another example is a contract that allows for termination “for convenience.” This allows one or both parties to end the contract without cause or having to provide a reason. Another is a force majeure clause, which allows for contract termination in uncontrollable circumstances, such as natural disasters or political unrest, that make the contract impossible to fulfill. For example, in a hurricane, it may be impossible to deliver goods or host an in-person event.

Common Language in Contracts

While contracts are diverse in the rules they establish, there are common provisions that you can look for. Provisions are statements in a contract that set the expectations for the parties.

Severability Clause – A provision that protects the remainder of a contract if a court determined that part of the contract is unenforceable. Let’s say for example that there is a four-page contract that took six months to negotiate. One provision of that agreement is determined to be illegal, but the general goal of the contract can still be completed for both parties. If there is a severability clause, the remainder of the four pages can still be enforced. If there is no severability clause, one of the parties could try to argue that the entire contract should be voided and determined to be unenforceable. 

Sample severability clause: If any provision of this contract is determined to be invalid by a court decision or law, the remainder of the contract shall not be impacted and will remain enforceable.

Arbitration Clause – A provision that gives an arbitrator the power to handle and decide disagreements between the parties. The contract can assign an arbitrator or it could designate a group of arbitrators. Arbitration clauses have strengths and weaknesses. Arbitration can allow for a much quicker resolution of a dispute than what the slow-moving court system can offer. However, the drafter of the arbitration clause can also include language that advocates for an arbitrator who is far more likely to decide in their favor.

Sample arbitration clause: In the event of a dispute between the parties to this contract, the dispute shall be referred to the Texas State Business Arbitrators Association for arbitration in accordance with United States Arbitration & Mediation Rules of Arbitration.

DID YOU KNOW: Those “judges” that you see on daytime television who handle minor disputes between parties are usually not actual judges. They are typically arbitrators and both of the parties have agreed to abide by the arbitrator’s decision, instead of taking the case to a real court. In exchange for appearing on the show, the show may pay the winning party for the amount that the arbitrator decides.  

Choice of Forum Clause – This provision allows the parties to agree to a place where lawsuits between the parties must be filed. This can help create predictability between the parties, but it may also help the party with more bargaining power select a forum that is friendlier to their point of view.

Sample choice of forum clause: Any lawsuits related to this contract that arise out of the relationship between the two parties to this agreement must be filed in Delaware courts.

Choice of Law Clause – This provision allows the parties to agree to the laws that will govern their relationship. They can decide to be governed by the state in which the parties sit or they can agree to be governed by the laws of another state.

Sample choice of law clause: This contract, any provisions in this contract, and any disputes arising out of this contract shall be governed by the laws of the state of Oklahoma.

Does this mean that anything in a contract is automatically enforceable?

No! You may be able to argue that a provision, even one in a contract that you signed, should be unenforceable. Maybe the language was intentionally unclear and the original drafter of the contract is trying to use it against you. Maybe new laws make it illegal to enforce!