A contract is a legally binding agreement. We enter into contracts almost every day, from our iTunes contract to our cellphone to the more obvious contracts that we enter into in a business context. While many contracts are straightforward, many are “fine print”-centric, and there are laws restricting certain contracts that need to be kept in mind during the drafting.
In order to have a valid, legally binding contract, there must be an offer by one party that is accepted by another, and there must be something of value exchanged. This can include contracting to have someone not do something which they have a legal right to do. For example, if I enter into a contract with a family member to pay them to stop smoking cigarettes, this would be fine as the other party would have a legal right to smoke cigarettes, and would be giving that up. If, however, I contract to get a family member to stop smoking opium in a jurisdiction where smoking it is illegal, then the other party had no right to engage in the behavior and so would not be able to go to court to have the contract enforced.
Although the concept of “acceptance” seems straightforward, it often isn’t. For example, on many occasions two parties are having preliminary discussions and, after a handshake, one party may walk away with a completely different impression about the status of their agreement.
For this reason, there are legal definitions for offer and acceptance that go beyond the day to day understandings of the terms. An offer is a manifestation of a willingness to enter into a bargain so as to justify an understanding that agreement will form a contract.
What this means is that there must clearly be an offer made to a party for them to accept. Once an offer has been made, it creates in the other party (offeree) the power of acceptance until the offer terminates. An acceptance, meanwhile, is essentially anything that would justify the offeror to believe that the other party has accepted their offer, including silence if the previous course of dealings would point to this being a reasonable manner of acceptance between the parties.
In addition, there must be an actual obligation; a contract cannot have a clause that would allow one party to unilaterally void the contact at their discretion. An example of this “illusory contract” would be if I offer to pay someone for a service “if I feel like it.”
Although contracts do not always have to be in writing, such as “oral contracts,” the terms can be difficult to prove in court and sometimes are not accepted even if proven. This includes contracts which are barred by the Statute of Frauds, which requires certain contracts to be written; if they are not, then there is no case.
Even if you have all the elements of a contract in writing, this does not necessarily mean that every part of it, or even the entire contract, will be valid. For example, there is what is known as “shrink wrap” contracts, which state that you have entered into a contract by opening a product, often removing the shrink wrap. This can happen without the consumer’s knowledge, and while they are often considered valid, they have been occasionally struck down in court. Similar are the “click wrap” contracts for apps and software, which require someone to accept a user agreement (i.e. a long, complicated, 8 point font iTunes agreement) or not be able to use the software. While this is a developing area of law, they are at least occasionally struck down.
“It’s important for a party to know what they are getting into in a contract, and unfortunately there is an entire industry of attorneys who make contracts which are perfectly legal, but still very confusing to the average consumer,” said Miguel Palmeiro of the law office of Miguel Palmeiro.
“There are laws to prevent certain abuses, but the system still allows an attorney to put a lot of detail in what is typically called the ‘fine print.’ This allows an attorney to take advantage of an unrepresented party. Meanwhile, you also see contracts that are overly broad or poorly written so as to allow for an interpretation that is completely different than what one party originally believed they were signing up for, and unscrupulous parties who take advantage of it. I always recommend having an attorney read over a contract when that contract is very important or involves a lot of money, such as the sale of a business or mortgages on expensive properties.”
If you have any questions about contract interpretation or creation of a contract, please make a free consultation. Remember, the advice is free, and even a brief conversation with a knowledgeable attorney can provide a lot of clarity.