4 Contract Myths

Pamela Koslyn

Written by

Business Attorney - Los Angeles, CA

Posted August 11, 2009

"If a contract isn't in writing, it's invalid."

There's a grain of truth to this one (and its cousin "I never signed anything"), because a few contracts must be written -- notably certain real estate and debt contracts and contracts that can't be performed within 1 year. Otherwise, oral contracts are every bit as enforceable as written ones, although they're harder to prove and harder to ensure that important details won't get left out. Written contracts have many pages of terms, so they'll include many more contingencies and prevent many more uncertainties than an oral contract made up of general WHO WHAT WHEN WHERE basics. But an oral contract that has all these things is enforceable--without paperwork and without any signatures, and so is an "implied in fact" contract, which is based on conduct of the parties, who, by acting like there's a contract, create one. Oral and implied in fact contracts have to be proved indirectly, through oral testimony and supporting documents like emails, texts, checks, invoices, etc.

"I can sign this contract and change my mind within 3 days."

This is infrequently the case, although it's widely thought that all contracts have a "cooling off" period. The best rule of thumb is follow is that if the contract doesn't say you have a right to cancel, you don't. The "3-day cooling off period" for canceling a contract does NOT apply to new or used car purchases. As of July 1, 2006 the "Car Buyers Bill of Rights" offers the "option" of a cooling off period of 2 days for a fee. Under Federal law, certain secured credit transactions (15 U.S.C. 1635) and unsolicited door-to-door sales (or sales at trade shows, but not craft fairs) (16 C.F.R. part 429) MUST disclose the right to cancel the transaction within 3 days. Health club contracts have their own law - you have 5 days to cancel those contracts. Certain other exceptions exist, such mortgage loans and dating service contracts. A full list is here: http://www.dca.ca.gov/publications/legal_guides/k-6.shtml

"This contract is standard."

This myth is 100% wrong. There's just no such thing as a standard contract. Every lawyer has their own contract forms, many businesses have their own, and a quick look on the internet shows how many different versions of the "same" contract there are. This myth is dangerous because it can lead to the equally wrong belief that a contract presented as "standard" is also fair and reasonable. Contracts need to be tailored to the parties and what they want and have agreed to, and while there may be some language that's typically included in contracts, the best drafting is done by applying the law to the facts and expressing the parties' desired end result.

"Boilerplate terms don't matter."

"Boilerplate" used to mean steel plates for boilers. Now it means "standard" contract terms. But as noted, there's no such thing. When people refer to boilerplate, they mean clauses typically found in contracts that determine non-substantive things, things that aren't the material WHO WHAT WHEN WHERE terms. These include which state's law governs and which jurisdiction, when and how the prevailing party gets their legal fees in a dispute, whether you can assign the contract, what the parties' relationship is, how notice to each party can be given and when it's effective, whether waiver of breach can continue without affecting the party's right to claim breach, and whether the agreement constitutes the sole agreement between the parties, among many others. The wording of these clauses can make all the difference in the world. See my Legal Guide "How to Draft a Contract" to see how one of these clauses, forum selection, can vary. and why it matters. Contract language always matters.

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