By Vicky A. Bufano
Faculty Member, School of Security and Global Studies, American Public University
DISCLAIMER: This article is not intended to be legal advice and does not substitute for competent legal counsel trained and licensed in your particular state and jurisdiction. Always consult an attorney if you have any questions about a contract you are asked to sign.
Health clubs, salespersons, cell phones, real estate and vehicles all have one thing in common: contracts. In today’s world, you might see or hear the term “agreement” instead of “contract” due to the negative connotation of the word “contract,” but both terms have the same meaning. A contract is a legally binding document that imposes rights and duties upon two or more parties.
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Contracts should be taken very seriously. Before you sign your name to a contract, it is wise practice to take into account five factors.
#1: The Law Requires You to Read the Contract
You may not realize it, but the law imposes upon the signer of most contracts a duty — to actually read the contract. Now, I know what you are thinking: “Read the contract? But contracts are so long and boring!”
It is true that contracts are long and tedious to read. However, when you understand that you have an obligation by law to read them, there are good reasons for that.
You must know to what you are agreeing, what is required of you by the contract and what is required of the other party, which will all be in the contract. Without reading the contract, you have no idea to what you are agreeing to be legally bound.
#2: Once You Sign the Contract, It’s Legally Enforceable
A contract is a legally enforceable promise. When you agree to its terms, you promise to do what is required of you. You will be held legally responsible and liable for what is contained in the contract you signed. If you fail to keep the promises you made, then there are legal penalties that will be imposed against you.
You may have to pay money for damages caused by your breach of the contract. In some contracts, the other party may have suffered a financial loss if you do not hold up your end of the promise. In other words, you have to make the other party whole and sometimes paying money is not enough.
A court may require you to actually do what you promised. This is called “specific performance.”
For example, let’s take a real estate contract for the sale/purchase of a home. If the seller does not honor the contract and refuses to sell the home, the buyer is usually not interested in receiving money for financial damages.
Instead, the buyer wants the contract to be enforced and for the house’s owner to sell the house. The court can legally make the sale go through, so that the house is sold to the rightful buyer.
#3: Read the Contract Carefully: You Might Be Giving Up Your Legal Rights
Some contracts have special terms that eliminate your right to sue the other party in court. Many contracts have arbitration clauses. These clauses require you to bring your grievances before an arbitrator.
An arbitrator is a neutral third-party person who hears the evidence and then makes a decision to resolve the dispute. Instead of filing a lawsuit and having a judge or jury decide your case, the arbitrator will be the decision maker.
Many times, arbitrations are defined in the contract as binding. Once the arbitrator makes a decision, you are bound by the decision and must abide by it; it is legally enforceable.
#4: Contracts Can Change the Law
Contracts can change the law that applies to your situation or your grievance. By signing a contract that has a “forum selection” clause, you agree to the forum that the drafter of that document has chosen.
The “forum” in this sense is a fancy word for location. For example, if the contract you signed wants to have Alaska courts decide a case, you would have to follow Alaskan law and file suit in Alaska, no matter where you live. In addition, “choice of law” clauses choose the law that applies to the situation, regardless of what state you reside in.
#5: Verbal Contracts Are Enforceable
Making sure you do not sign your name to a contract without considering certain factors is important to protecting your legal rights. However, a verbal contract cannot be signed.
Why is this important? Even if a contract is not in written form, it can still be enforced. There are exceptions, but many verbal contracts are valid.
For instance, the law requires some contracts to be in writing to be enforceable, such as real estate contracts or the sale of goods over $500. You should be careful in regard to what contracts you sign your name and be careful as to what you verbally agree.
While this list is not exhaustive regarding what you need to consider before signing or verbally agreeing to a contract, it is a good starting point for proper execution. Just because a salesperson or agent explains to you what the contract says, you will be bound by its terms and not by what someone says to you.
Take time to thoroughly read those lengthy contracts, despite what the person who wants you to sign a contract says or does. Many times, you will hear sighs and see eye rolls when you tell the person you want to read over the contract.
However, just keep your cool and read all of it. Always be sure to what you are agreeing in order to avoid any penalties or other unpleasantness later.
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About the Author
Vicky Bufano is a part-time instructor in the School of Security and Global Studies at American Public University. She holds a B.S. in legal studies from the University of Central Florida and a J.D. in law from Gonzaga University. In addition, Bufano is a lawyer in Florida.