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Understanding Contracts (Houston Bar Association)

Other Money & Debt Issues

This material is excerpted from the Houston Bar Association's Consumer Law Handbook, which contains information on breach of contract and remedies for breach of contract. 

 

When does the law enforce a promise?

Under the law, a promise is usually enforceable only if it is given in exchange for something. This legal concept is called “consideration." That means that both parties to an agreement must give something up of value for the agreement to be enforceable.

The example the Houston Bar Association's Consumer Law Handbook provides: A jeweler promises to sell a ring to a buyer for $300. This promise is enforceable because both parties have given up something of value: the jeweler is to give up the ring while the buyer is to give up $300.

See "When does the law enforce a promise?" on page 6 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

 

Does a contract have to be in writing?

No.

Generally, if you agree to do something in exchange for someone’s promise to do something else, there is a legally enforceable agreement. Usually you can enforce an agreement if both parties meant for it to be binding. So, the contract does not have to be in writing to be enforceable. There are exceptions for certain types of contracts, listed in a law called the “Statute of Frauds." 

See "Does a contract have to be formal?" on page 7 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

Does a contract have to be in writing or signed to be enforceable?

The law provides that most contracts do not have to be in writing to be enforceable. Oral contracts have long been used in Texas, and they continue to be enforced today. Many agreements are sealed by nothing more than a handshake. Make no mistake about it: such agreements are usually enforceable just as if there was a written contract between the parties. However, some contracts are considered more important than others, and there is a law called the Statute of Frauds that requires certain contracts to be in writing. The types of contracts that must be in writing to be enforceable are described below.

See "Does a contract have to be in writing or signed to be enforceable?" on page 7 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

Should I put an agreement in writing?

It is always a good idea to put an agreement in written form. As noted above, certain types of contracts must be in writing to be enforceable. Therefore, if you are entering into an agreement for real estate, an agreement for the sale of goods valued at more than $500, or an agreement that cannot be performed within one year, be sure to have a signed, written agreement. Otherwise, you will not be able to enforce the agreement. Even when the law does not require an agreement to be in writing, you should take steps, if at all possible, to put the agreement into writing. There is no need for a long, computer generated contract. A few words on a napkin oftentimes will suffice. A writing provides evidence of the contract and clarifies the party’s obligations. Remember, “Better safe than sorry.”

See "Should I put an agreement in writing?" on page 8 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

What is the purpose of the Statute of Frauds?

The Statute of Frauds is designed to provide reliable evidence of contract terms in the event of a dispute. It also prevents misunderstandings or misrepresentations about the actual terms or existence of the contract.

There are exceptions to the Statute of Frauds.

In certain cases, performance of a party’s obligations will take a contract that is otherwise unenforceable under the Statute of Frauds and make it enforceable. For example, suppose Buyer orally agrees to purchase a $2,000 custom-made dining room table from Seller. After Seller spends weeks building the table, Buyer says he has changed his mind and doesn’t want the table. The agreement is for the sale of goods that cost more than $500, so it should be in writing. What happens? Is the Seller out of luck? Under the law, if the party seeking enforcement of the agreement (in this case the Seller) can show that he acted in reliance on the oral agreement, and has suffered a substantial detriment for which he has no adequate remedy, the agreement will be enforced. In this case, Buyer would therefore be forced to pay the $2,000 for the dining room table.

See "What is the purpose of the Statute of Frauds?" and "Are there any exceptions to the Statute of Frauds?" on page 8 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

How long do I have to change my mind after I sign a contract?

In most situations, once you sign a contract you are bound by its terms. While many people believe that they have the right to change their mind for up to three days after they sign a contract, that is not the law in most cases. There are only a few instances in which you have three days to change your mind, such as contracts that are solicited at your residence. In most other cases, the law will force you to honor the contract as soon as you sign it. For more information on the limited availability of a three-day right to cancel, visit Door-to-Door Sales & 3-Day Right of Rescission at the website of the Texas Attorney General's Consumer Protection Division.

See "How long do I have to change my mind after I sign a contract?" on page 8 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

How old does someone have to be to enter into an enforceable contract?

A person of any age can enter into a contract. But Texas law holds that the contracts of a minor (that is, someone under the age of 18) are generally voidable at the minor’s option. That means that a minor can enforce an agreement he or she enters into with an adult. However, an adult cannot enforce an agreement entered into with a minor. This rule discourages adults from entering into contracts with persons under 18 years of age.

See "How old does someone have to be to enter into an enforceable contract?" on page 8 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

What damages are available if someone breaches a contract?

Every breach of a contract entitles the injured party to sue for damages. The general theory of damages in contract actions is that the injured party should be placed in the same position as if the contract had been properly performed. Thus, the injured party should be compensated in money for the loss of the bargain. Because damages are designed to compensate the injured party, not to punish the breaching party, punitive damages are not available in breach of contract actions.

See "What damages are available if someone breaches a contract?" on pages 8–9 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

Am I entitled to my attorney’s fees if I hire a lawyer to prosecute my claim?

A party is generally entitled to his or her attorney’s fees from the defendant if he or she hires a lawyer to prosecute a breach of contract claim and later prevails in court. (This does not apply to most tort actions such as negligence.) However, most cases are settled, and as part of the settlement, most parties pay his or her attorney’s fees. You are responsible to your attorney for his or her attorney’s fees regardless of the outcome.

See "Am I entitled to my attorney’s fees if I hire a lawyer to prosecute my claim?" on page 9 of the Houston Bar Association's 2018–2019 Consumer Law Handbook.

 

Click the links below for more information

CLICK HERE For the 2018–19 Houston Bar Association Consumer Law Handbook 

CLICK HERE For the Library of Congress's Contract Law: A Beginner's Guide