Q: What is a contract?
A: A contract is an agreement between two or more people or businesses that creates rights and obligations for both sides of the transaction. The agreement contains important terms, conditions, rights, and duties that each party must perform and abide by as long as those terms and conditions are legal under state and/or federal law. Some examples of contracts include: a lease for renting an apartment, an employment agreement, a car loan or lease agreement, a cell phone service agreement, and a gym membership agreement.
Q: Who can sign a contract?
A: Any person 18 years or older can legally sign a contract. Remember that signing a contract makes you legally responsible for everything within that contract.
Q: What should I consider before signing a contract?
A: Before signing a contract or agreement:
- Read the entire document and make sure you understand and agree with each term and condition;
- Verify that the contract accurately reflects the parties’ names and terms you have agreed to;
- If you do not understand a term, ask questions;
- If you disagree with a certain section, talk with the other party/person about changing or eliminating that section;
- Never leave blank spaces in a contract; either fill them in or cross them off; and
- Always make sure you have a copy of the contract that is signed by both parties and keep it in a safe and secure place.
Q: What if the contract cannot be changed?
A: Some contracts are provided on a “Take it or Leave it” basis. These contracts are typically non-negotiable, and you will have no opportunity to ask questions or request changes. This could include contracts such as cellular service contracts, internet service contracts, and online service agreements. It is important to read these agreements thoroughly to understand what penalties will be assessed against you if you find yourself in a situation where you cannot perform your end of the deal. Use a search engine like Google to research unfamiliar terms like indemnity, default, liquidated damages, and others. Consult with your peers and parents about signing an agreement with terms you do not understand.
Q: Can you enter into a contract without realizing it?
A: Yes. An example of such a contract is a credit card agreement. When you apply for a credit card, you will usually be provided with a small booklet titled “Terms and Conditions.” While you will not be asked to sign these terms and conditions, they will nevertheless be binding on you. For example, if the booklet says you will be charged a $25 fee for a late payment, you will be deemed to understand and have agreed to that term when you start using the credit card. Similarly, most online retailers, such as Amazon, have terms and conditions posted on their website. When you make a purchase from an online retailer, you will be deemed to have agreed to those terms and conditions.
Q: What if a party fails to perform their part of a contract?
A: If you or the other party fails to perform the duties and obligations stated in the contract (a “breach”), a few things could happen:
- The parties can agree to resolve the breach by changing the original contract to allow the failing party to continue performing their duties under the contract (known as a modification).
- The non-breaching party can agree to extend the deadline for the other party to perform. For example, if you fail to make a timely payment on your credit card bill, the bank might agree to waive a $25 late fee if you post the missed payment immediately.
- The non-breaching party may choose to ignore the breach if that breach is immaterial to the transaction.
- The party in breach can be sued in court for failing to perform their duties. In that case, a judge will decide the consequences. In most cases, the failing party will owe the other party money (an award for monetary damages).
Q: Do all contracts have to be in writing?
A: No. In Arizona, verbal contracts may be legal and binding. However, the existence of a verbal contract or its terms may be difficult to prove if one side fails to meet their responsibilities. To have an official binding agreement, the contract must be in writing and signed by all parties who are held to the contract's terms.
Laws may have changed since the last time this article was updated. The current and most up-to-date laws can be accessed here.