Straight Talk About Contracts

We wonder sometimes whether we will run out of topics for our blog and newspaper columns, but we always find more legal subjects that people misunderstand. People misunderstand contracts more frequently than they misunderstand many other subjects, so we are shining a light on them this week.

A contract is an agreement that requires someone to either do something or not do something. A contract exists when someone offers something in exchange for something else and the other party accepts the offer. For an example of an agreement to do something, when you order a pizza, the pizzeria agrees to bake a pizza and you agree to pay for it. For an example of an agreement not to do something, a new employee that signs an employment agreement containing a covenant not to compete agrees not to compete against the employer during the employment and for a certain period after the employment ends.

A contract can exist regardless of whether the parties sign a written document. A written contract document helps the parties communicate their respective rights and responsibilities, but the actual contract usually exists before the parties sign the written document.

There are many ways for people to have problems with contracts. Some people believe mistakenly that unwritten promises are unenforceable. Other people depend on things that the party said before they signed an agreement, without understanding that an "integration clause" in the written contract wiped out all of their previously spoken understandings. Also, as contract documents become more and more available through the Internet, many people create problems for themselves by trying to write agreements that they do not understand.

It is difficult to prove that an unwritten contract exists sometimes, but one person's action in reliance upon an agreement can prove the agreement's existence and enforceability. For example, if an employer offers a job to an applicant, but the applicant never shows up for work and the employer does not pay wages to the applicant, their lack of action creates no evidence of their agreement other than their conflicting statements. However, if the applicant shows up and works, but the employer fails to pay wages, the applicant's work proves existence of the employment agreement even if the amount of the wages is not clear.

When people negotiate contracts, such as real estate sales or coal leases, several offers and counter offers may pass between the parties before they sign a contract. When a person neglects to read the written contract carefully, the person exposes himself to an unwelcome surprise if he depends on a spoken promise that does not appear in the final version of the written contract document and the document says that it contains all of the terms and conditions of the parties' agreement.

Almost every lawyer has heard the maxim, "a person who represents himself has a fool for a client." In today's do-it-yourself culture, many people hurt themselves by writing their own agreements without fully understanding what they are doing. For example, someone might think that a contract should include an arbitration clause to avoid litigation in court, but if the author writes the arbitration clause poorly, the sloppy arbitration clause may trigger costly litigation to determine how the arbitration should proceed.

It is almost impossible to live as an adult for one day without making a contract (such as to open or use a social media account or to buy food or gasoline). No person can afford to hire a lawyer to negotiate or read every insignificant contract, but who can afford to make an important contract without an experienced lawyer's advice? A good rule of thumb is that if you could not afford to lose the entire benefit of an agreement, you should not make the agreement without discussing it with a lawyer.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and Jeff is a Fellow of the American College of Trust and Estate Counsel. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator and was the 2014-15 President of the Indiana State Bar Association.