Contracts: What do I need to know?
Last updated on 08/23/2021 at 3:58 pm
What is a contract?
A contract is an agreement between two or more people, or entities such as corporations, to do a particular thing. For example, a seller agrees to deliver a product or perform a service, and a buyer agrees to pay a certain amount of money for what he is buying.
A contract may be oral or in writing. Some contracts must be in writing. Written contracts are always better because they reduce the chances of a misunderstanding if things go wrong. Written contracts may look scary, but they can be short and in plain language. They can even be written on a plain sheet of paper. A contract just puts into words what the parties intend to happen, when it should happen and how much it will cost.
What contracts must be in writing?
Some contracts must be in writing. This includes these types of agreements:
- An agreement to buy a real estate, including a house.
- An agreement to rent a house or land for more than one year.
- An agreement to buy something from a merchant for $500 or more.
- An agreement that can’t be completed within one year.
- An agreement to pay someone else’s debt.
What is the effect of signing a contract?
When you sign a contract, it means you have read it, understand it, and agree to be bound by what is written in the contract. This is usually true even if you have not read it, could not read it or were physically or mentally impaired when you read it.
If you cannot read or do not understand a contract, get someone you trust to read and explain it to you. You might also want to consult a lawyer before you sign a contract. The legal effect of voluntarily and knowingly signing a contract is you may be sued and found liable if you fail to abide by (breach) the contract.
What should be included in a contract?
- The date of the contract and the names of the parties involved in the transaction.
- The services being performed or the product being purchased.
- The purchase price.
- How and when payments will be made.
- How long the contract will last.
- The reasons that the parties may terminate the contract, and how that may be done.
- Any specific terms that the parties may agree to, such as a return policy, warranty, etc.
Can a contract be changed after it is signed?
Once a contract has been signed by the parties, it cannot be changed unless both parties agree. That is why it is so important to read the contract carefully before you sign it. You want to make sure it contains everything you think is important. Before the contract is signed, if you see a provision that you think should be changed, both parties may make the change in ink and initial the change. Then it may be signed.
What a contract should not include?
If the other party is not willing to negotiate the terms of the contract in good faith, you need to consider whether you want to do business with this person. Some people insist that language be included that makes you give up your legal rights. For example, they may require that you must sue in a different state if there is an issue with the contract or that you have no right to sue at all. If the other party refuses to eliminate provisions like this, you may want to walk away from the deal.
Also beware of contract provisions such as mandatory arbitration and liquidated damages. Mandatory arbitration means that you have to try to settle any disputes without having your day in court. This is not a right you should ever give up. The same goes for liquidated damages, which usually means you give up a certain amount of money if the other party claims you violated the contract. You should not give up your right to dispute the amount you owe even if you do breach the contract.
What are some contract "do's" and "don'ts"?
Never sign a contract that has blanks left unfilled.
2. Never depend on an oral promise made by the other party. Include it in the written contract.
3. If you are writing your own contract, use simple language that all parties can easily understand. If the contract is written by another party, make certain you understand every word before you sign it. After that, it’s too late to change your mind or to change the contract without the other party’s agreement.
4. Make certain that the document has a title clearly showing that it is a “CONTRACT.”
5. Make certain the names of all the parties involved in the contract, and all of their contact information, are clearly listed and correctly spelled.
6. Make certain the date is clearly written and correct.
7. Each page should be initialed by all parties, and signed in blue ink so the signatures will copy clearly.
8. Always save for your files a signed copy of the contract.
9. Always get a signed and dated receipt for any payment and save it. This may be your only proof that you have paid. Money orders are hard to trace. Cash payments cannot be proved without a receipt.
What is "buying on credit"?
You can pay for things two ways. You can pay in full, or you can pay in installments over time. When you pay over time, the seller is giving you credit. This is the same as a loan. The seller usually charges interest for the ability to pay over time, which increases the total cost. Whether you are buying a product over time or borrowing money, it is called “financing.”
If you finance over time, be sure you read, understand and agree with everything on all of the papers, before you sign anything. As a general rule, when you engage in a financing transaction, it will be with a large institution, such as a bank or a retail creditor, like Sears. They will ask you to sign printed forms on a take-it-or-leave-it basis, and they will not negotiate. You should consult with a lawyer if you are confused about what you are being asked to signed, especially if the amount involved is substantial.
What happens when two or more buyers or debtors are obligated to repay a loan?
The document that usually makes the buyer liable for the loan is called a promissory note or note. When two or more people sign a note, it generally results in “joint and several liability.” That means that the seller may collect some or the entire loan from any one or all the people who signed the note.
If you pay more than your share of a loan, you may file a lawsuit for “contribution” from the other persons who signed the note.
What is "co-signing" or guaranteeing a contract?
By agreeing to act as a co-signer or guarantor of a note, you are agreeing to pay for the loan if the primary signer does not. Before you co-sign or guarantee, you need to know that you are just as liable as the primary signer and that in most cases the seller or lender can come after you without first trying to collect from the primary signer.
Even if you are not asked to pay, just being obligated on a debt may keep you from getting other credit you need. Your credit report will include debts on which you are a co-signor or guarantor. Before you put up property as security for the debt, be sure you understand what could happen. If the debt is not paid, you could lose your property.
Can a contract be cancelled after it is signed?
Once you sign a contract, it is valid and enforceable right away. Usually, there is no right to cancel. Generally, you cannot get out of, or “void,” a contract by refusing to pay or to accept a product or service, or by returning what you bought.
What is a breach of contract?
A breach of contract occurs when one party does not follow the terms of the contract. For example, one party fails to make payment on time or fails deliver a product.
A breach may be “material” or “immaterial.” The type of breach is important when deciding what type of legal action to take against the other party or in determining how the breach can be remedied.
What happens if there is a breach of contract?
If a contract is breached, the person who committed the breach may have to pay the other person monetary damages. The contract usually says what happens if a breach occurs. Or one of the parties may ask a court to determine what should happen. A court may decide to “rescind” or cancel the contract as if it never happened. If that happens, neither party will have to make payments or perform the actions that were originally agreed to.
If you have any doubts about the contract, you should have an attorney review it. If you cannot afford an attorney you may contact Legal Aid of West Virginia to apply for help . Or you can try these other legal resources.