Top 3 Contract Myths

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Top 3 Contract Myths

Contracts are an essential part of both our professional and personal lives. As civil contract lawyers, we deal with contracts almost daily, often without even realizing it. Whether a company wants to come and provide a service to our home or we are in the process of closing a business deal, we review, negotiate, and sign contracts almost daily. Unfortunately, there are many myths surrounding contracts, what they are, and what their requirements are. Believing these myths means that you may enter into a contract that is not enforceable in court or leaving your rights on the table. But first…

What is a Contract?

Before getting to contract myth-busting, it is important to understand what a contract is and why they are important. A contract is a legally binding agreement between parties in which the parties make an exchange. The purpose of having a contract is to ensure the parties have a legal remedy should one party breach the contract. Otherwise, the contract is not worth the paper it is written on. When a contract has terms that are not enforceable, the parties can run into serious problems getting their rights. So what are the most common contract myths? Here are the top 3 contract myths I have seen in my practice.

Contract Myth Number 1: The Myth of the ‘Standard Term’ or ‘Standard Contract’

I’ve talked about this before and this is still absolutely one of the worst myths that I have seen even other attorneys buy into. Clients often ask me ‘is this standard’ or worse — will come to me with boilerplate or template contracts they got from the internet believing it is a sound contract. I do not fault consumers for this at all because it is easy to believe the contracts are valuable when some sources advertise them as good contracts.

As for as ‘standard’ terms, contracts are, for the most part, whatever the parties want them to be and what works for the parties. Legally speaking, there are no ‘standard’ terms in that the law absolutely requires parties to agree to certain terms. What some people may mean by ‘standard’ terms are common practices as it relates to certain industries, but even then, there is no requirement to be bound by those standards. For example, it may be an industry practice to invoice a customer with a ‘net 30’ payment term, but this is just a common practice and nothing more. There are other ‘standards’ such as standards of care or a business’ internal standard procedure, but these are not governed by contract law.

There are a few reasons why is is critical for clients (and ahem, other attorneys) to understand, that if you want to enter into a contract, you are free to negotiate what you want and if a term does not work for you, then negotiate it. Also, sometimes the ‘standard’ trap is used by companies when discussing with customers their policies leading those customers to believe they can not negotiate their contract. In that case, it may be the company’s own ‘standard’ but it is not a legal standard and not required of a consumer to accept. Lastly, the problem with clients believing there is are template/standards of contracts, is that these clients may believe any contract from the internet will protect their interests. Bottom line, generally, contracts are meant to serve you and if they are not, do not think you are bound by some fake ‘standard.’

Contract Myth Number 2: Contracts Need to be Signed

This is part-myth actually. It is always superior to write and sign your contracts for the purpose of proving a contract existed and to demonstrate what terms were agreed to. There are certain types of contracts that (sort of) need signatures if the type of contract falls under the ‘Statute of Frauds.’ These are contracts are include a terms that can not be performed within one year or a contract for the sale of land. I say ‘sort of need signatures’ because in a lawsuit, the signature that really matters is the defendant (ie, ‘the party being charged’). In addition, contracts for the sale of goods of more than $500 also need to have ‘sufficient’ writing.

But if a contract does not exist, does that mean a wronged party has no rights? Nope. There are legal theories called ‘quasi-contracts’ that are like alternative legal claims in the event a court finds that a contract does not exist between the parties. These theories are not as effective as a contract and can be difficult to prove sometimes, but they are available as an option for a wronged party to get at least some recovery.

Contract Myth Number 3: If The Parties Agreed to a Term, Then They Are Bound By Those Terms

Generally, this is true, but there are very important exceptions. For one, there are terms that courts will not enforce (and ultimately courts are the only ones that can enforce contracts). For example, terms that violate certain laws are not enforceable such as an employee agreeing to get paid less than minimum wage. Non-compete clauses are also an example that courts will not always enforce. (See my non-compete guide). Another common unenforceable, but still agreed upon term, are ‘no oral modification clauses. No-oral modification clauses basically say ‘this contract can only be modified by written agreement by both parties.’ However, courts will still accept orally modified contracts.

If you need an Illinois contract lawyer, call us today at (630) 517-5529 or use the contact form for us to contact you.