Five Ideas About Contracts that are Just Plain Wrong.

Most contract disputes are between honest people with botched expectations.

Contracts come in all varieties: leases, purchases, employment, options, licensing, construction, and just about every other kind you could imagine.  Sometimes the proliferation of contractual agreements threatens to be an avalanche on our senses and we shut them out. We’ve all had our eyes glaze over as when scrolled through a EULA (End User License Agreement) when we installed software, or skipped over the fine print of our credit card agreement.  But as sigh-inducing as contracts can be, we know that, deep down, we need them. However, some misconceptions get handed down through families like holiday fruitcake or tacky Elvis snow globes.  Here are my five favorite contract myths, in no particular order.

1.  It’s always important to get a contract notarized.  I’m always amazed by the magical influence of a notary stamp.  The public at large gives it more respect than copyright claims or speeding signs, which are arguably more important.  Perhaps because it is a rare formality in a world that is brazenly familiar and informal, a notary stamp holds a special place in people’s minds. To the public, there is a mystic quality to a notary stamp that transforms any cocktail napkin-scribbling into the Magna Carta.  In truth, there are usually only two reasons why a contract might have a notary stamp: (1) To prove it was signed, or (2) because a special statute or other law requires it for the type of contract.  It’s more common to require a notary stamp on government forms than on contracts between individuals, but mostly because the government just doesn’t trust you. (See reason #1).  Although it’s hard to think of a situation where a notary would harm a contract, it’s not required as often as you might think.

2.  All oral contracts are invalid.  As a general rule, oral contracts are just as valid as written contracts.

3.  All oral contracts are valid.  Well, rules are made to be broken.  Written ones–contracts, not rules–definitely help prove the existence of the contract.  The exception to the “oral contracts are perfectly valid” statement is when the state specifies some types of contracts which must be in writing to be valid.  These include contracts for the sale of real estate, contracts for the sale of anything over $500, and others. The collection of these special types of contracts is called the “Statute of Frauds,” which unfortunately for logical, clear-headed types, has almost nothing to do with fraud.

4.  Both sides must meet with an attorney to make the contract valid.  While an ounce of prevention is worth a pound of cure, having an attorney (or not) does not influence of validity of the contract.  Some special contracts, like prenuptial agreements, have been thrown out by courts if it was determined that one side was pressured into signing it.  Part of a court’s examination of that pressure might include finding out if both sides had a chance to meet with attorneys and discuss the contract.  But this goes to whether each side really signed it voluntarily, not whether the language was more or less enforceable.  You’re a grown up.  Put on your big boy pants and realize that you’re responsible for your own contracts.  If you don’t understand something, ask before you sign it.

5.  Legal contracts are for people who don’t keep their word.  Only a dishonest man, the thinking goes, would not take another man at his word.  First, this is bogus because it presumes that contract disputes only happen between dishonest people. Or one honest person and one scoundrel.  I disagree.  Most contract disputes are between honest people with botched expectations. Contracts help prevent disputes by focusing expectations–written contracts even more so.  If honesty is the prize, let’s be honest enough to know that we all make mistakes, we are forgetful, and we are capable of misunderstandings and miscommunications.  In fact, it’s the scoundrel who will shy away from being held accountable.

These are the tip of the iceberg.  Most of these myths show either too much or too little trust in legal formalities.  Formalities, from the king’s seal of ancient times to the modern notary stamp, existed to verify the truth of the document, not to create the document.  At the core of every contract is the intent of the parties.  So, “don’t sign anything you don’t understand,” might not be such a bad cliché after all.