Knowing the Basics of Contracts in California

On Behalf of Griswold LaSalle Cobb Dowd & Gin LLP

Without even knowing it, you encounter contracts on an everyday basis. Just think about the terms of service language you agreed to on your phone when downloading a mobile application, or when you created your Facebook account. Those agreements are all contracts. Many people think contracts are only for businesses doing large transactions, but that could not be further from the truth. Even simple transactions can benefit from a well written agreement. The goal of this article is to give you some foundational information on how to write a contract which will protect you in any of your course of dealings.

First, let’s talk about what exactly is a contract? In its most basic terms a contract is an agreement between two or more parties to 1) do something or to 2) refrain from doing something.[1] For the contract to be enforceable what the parties agree to do or refrain from doing must be legal. That means you cannot expect to have a contract for illegal drug sales upheld by the courts if one of the parties failed to live up to their end of the bargain. Contracts for illegal activities are  “void”, which means there is no contract.[2]

Now lets’ move to what are some essential things you will want to do and include in your contract so that you reach your desired goal.

One of the first things that you can do to ensure your agreement has the desired strength is to always put your agreement in writing. Oral contracts are binding on parties in California, but it is much easier to prove what the parties agreed to and what the intent of the parties was, if the agreement is fixed in writing.[3] However, there are some agreements that must be put in writing. Now I know you may trust the other side, and you might take their word that they will do something on time or pay you on time, but it is always better to be safe then sorry. This even includes when you are dealing with family, and some might say especially when dealing with family. Therefore, your first goal in making a contract is to put the agreement in writing.

The next thing you will want to do is include all the included parties’ names in the contract. That means if it is between people include everyone’s legal names. If you are a business doing a transaction include all business names, entity name, etc. Along with this you want to make sure that all the parties to the contract can actually enter into a contract. In California if you enter into a contract with an individual eighteen (18) years old or under, that minor can disaffirm your agreement making it invalid.[4] Therefore, you should avoid contracting with any minors.

The contracting parties must also be mentally fit.[5] This includes a party not being under the influence of any alcohol or other prohibited substances at the time of signing. A contract with an intoxicated person is voidable, therefore there is risk your contract with that person can be eliminated.[6]

Another important thing you need to include in your written contract is the “consideration” which is being exchanged between the parties. Consideration is the exchange of some form of goods, services, intellectual property, or simply money.[7] The consideration should be expressly stated. For example: If Jim is agreeing to mow Matt’s yard for $20 a week. Jim’s consideration would be his service of mowing the yard, and Matt’s consideration would be paying the $20 a week to Jim. Whatever you will be exchanging with the other party of your contract needs to be expressly written in the contract. If you have a payment schedule with the other party you will also want to include the amounts to be paid and the dates on which they will be paid. Also, you will want to include the total sum of money being paid along with any cap on payment that the parties have agreed to.

One of the most important things that you can do when writing a  contract is to include any and all relevant terms that the parties have agreed to in your previous discussions. Do not assume that just because you and the other person discussed doing something previously it will become part of the written agreement. If something is relevant to you then make sure it is included when the contract is written. For example: If Jim told Matt that he would give Matt a bonus of $10 at the end of every month, then Matt should make sure that the promise of the bonus is included in the language of the contract. Otherwise a dispute will likely arise about whether Jim is obligated to pay Matt a bonus since that fact is not stated in their contract. Many contracts include provisions which state that any prior agreements and promises, including oral promises, not expressly stated in the written contract are superseded or invalid. This is done to nullify anything that not stated in the agreement. So the lesson is that if you believe something is relevant, make sure it gets into the written contract.

Expressly state the “term” of the agreement or in other words the length of time that your agreement will be in effect. Along with this you want to state how your agreement can be terminated by the parties. A lot of contract disputes arise out of one party exiting the contract before the terms are completed. The contracts termination language should include the conditions in which the agreement can be terminated early by the parties or under what conditions a party can exit the agreement.

The last necessity that must be included in all contracts is to have all parties sign and date the contract.[8] Signing and dating the contract goes to proving that all the parties agreed and accepted the terms. Without signatures there is no proof that either agreed to the terms of the document, and it is likely a person will try to wiggle out of the contracts enforcement against them.

A bonus option to include in your written contract is how any disputes between the parties will be resolved. Many people when writing a contract decide that if there is a breach or any other material dispute involving the agreement, then the parties will have to settle the argument with arbitration, mediation, or litigation in a specific county Superior Court. In this way the parties can dictate beforehand how and even where a conflict will be resolved.

There you have it. If you combine all the concepts we discussed above you will be well on your way to putting together an enforceable contract. However, if you do not feel comfortable writing an agreement on your own, and would rather it be handled by a trained professional, you can contact our firm which will have one of our highly trained attorneys write it for you.

[1] California Civil Code Section 1549

[2] R.M Sherman Co. v. W.R. Thomason, Inc. (1987) 191 Cal. App. 3d 559, 563.

[3] California Civil Code Section 1622

[4] California Family Code Section 6710

[5] California Civil Code Section 39

[6] The Restatement (Second) of Contracts Section 16

[7] California Civil Code Section

[8] California Civil Code Section 1624

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