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Understanding Contracts

Other Money & Debt Issues

This article gives basic information on contracts and the general rights and remedies under a contract.

In this article adapted from the Houston Bar Association's Consumer Law Handbook, you will learn some very basic contract law principles.

What is a contract?

A contract is simply a promise between two parties that can be legally enforced. There must be an exchange of something of value by each party, such as money, goods, or services. A contract can be as simple as buying a gallon of milk or as complex as selling a company.

What makes a contract legally enforceable?

Both parties to an agreement must also give up something of value, which is called “consideration." Often the consideration is money, but it can be anything of value. For example, a neighbor offers to mow your lawn for $30, and you agree to that price. This agreement is enforceable because both parties have given up something of value: the neighbor gives his lawn-mowing service, and you give $30.

A contract also must have a legal purpose. In other words, you cannot enforce a contract that requires one party to break the law. Additionally, a contract can only be enforced against someone who was legally capable of entering the agreement. A contract cannot be enforced against a person under 18 or someone who lacked the mental capacity to enter into an agreement.

Does a contract have to be in writing?

No, a contract usually does not have to be in writing to be legally enforced, and you can enforce a verbal agreement if both parties intended to be bound by it.

However, there are certain types of contracts that must be in writing. These include contracts for the sale of real estate, real estate leases lasting more than one year, the sale of goods over $500, oil & gas leases/royalties, and others covered by the "statute of frauds."

Even if a written contract is not required, it is always a good idea to have a written agreement. A written agreement does not have to be a formal or complex contract, and it can be handwritten. It must contain the terms of the agreement and be signed by both parties. Things like emails sent by the parties coming up the agreement or the parties signing a napkin with a few words about the deal can constitute a written contract.

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 there is a common belief that you have the right to change your mind for up to three days after you sign a contract, that is not the law in most cases.

There are only a few instances in which you can change your mind (also called a “right of recission” or a “cooling off period”), and the length of time you have to cancel is governed by specific statutes. Some examples of statutes allowing cancellation are certain door-to-door salesservice contracts/extended warranties, or timeshare purchase contracts.

Read more about The Three Day Right to Cancel a Purchase and when it applies.

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

A person of any age can enter into a contract, technically speaking. But Texas law holds that the contracts of a minor (that is, someone under the age of 18) are "voidable" by the minor. That means that a minor can choose to enforce an agreement they entered into with an adult, but 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.

What damages are available if someone breaches a contract?

If a party breaks a contract promise, the other party can sue them for “breach” of the contract and ask for money damages. The idea of damages in a contract case is to put the injured party in the same position as they would be if the contract had been completed. So the injured party can sue for the amount they lost because the contract was broken. However, these damages are to make the injured party whole and are not meant to punish the breaching party. Punitive damages are not generally available in breach of contract actions.

You should also make sure to review your contract carefully. Sometimes, a contract contains a section that outlines what the damages will be in the event of a breach. These damages may also be called “liquidated damages.”

Another type of remedy that may be available in rare situations is called “specific performance.” Specific performance basically means that the court makes the breaching party complete their responsibilities under the contract. This remedy is only available when money damages cannot adequately compensate the injured party, and it is entirely in the discretion of the judge. It is sometimes awarded in breach of sales contracts for unique goods or when a seller breaches a real estate contract. You cannot recover damages and get specific performance.

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

In a breach of contract lawsuit, Texas Civil Practice & Remedies Code 38.001 provides that a party can recover attorney’s fees if they win the case in court.

However, many cases are settled out of court, and it is common for the parties pay their own attorney’s fees as part of the settlement agreement. Also, you should carefully read the contract you are trying to enforce. Some contracts contain terms about attorney’s fees that may determine whether a party receives attorney’s fees in a breach of contract or other lawsuit. So, while it is possible to get attorney’s fees paid in a breach lawsuit, it is not guaranteed.

More information

The complete Consumer Law Handbook is available on the Houston Bar Association's Legal Handbooks page. 

The Library of Congress's Contract Law: A Beginner's Guide also has links to additional resources. 

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