State of California California Department of Consumer Affairs

Contracts (Fact Sheet)

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Latest revision as of 17:29, 8 March 2011

705-Attorney General

CONTRACTS (FACT SHEET)

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CONTRACTS (Basic Rules):

  • A contract is an agreement between two parties (for example, between two persons or a person and a business or organization). It describes each party's promises to the other. If one of the parties doesn't perform his or her promises, the other party can take that party to court.
  • A contract can be oral or written. In most cases, it's a good idea to put a contract in writing. It shows that there was a contract, and it proves what things you and the other party promised each other.
  • Contracts for many kind of goods or services are required by law to be in writing. For instance, a guarantee of someone else's debt must be in writing.
  • You do not have to use particular forms or legal language to write a contract. You can use your own words, but clearly state what you want the other party to do and what you will do in exchange.
  • When writing a contract, include everything that both of you agree to. The court may assume that all oral and written understandings are included in your written contract and may ignore any that are not.


What Makes a Contract Legally Binding?

  • All of the terms in the contract must be lawful. For example, the contract can't require the other party to break the law to meet the terms of the contract.
  • Although you can waive many rights given to you by law, some rights cannot be waived. For example, a landlord cannot take away your right to privacy, even if you signed something saying that you waived that right.
  • The persons making the contract must be legally capable of doing so. For example, both must be legally sane and, in most cases, over 18. (CC 1550)
  • Both parties to a contract must give their consent, which must be true and freely given. If one party's consent was obtained through fraud (deception or trickery), the contract can be canceled by the other party. Either party can cancel the contract if the consent of both parties was based on a mistake. (CC 1550)
  • A contract can also be canceled if it is signed under duress or undue influence. Examples of duress are threats of or actual physical harm. Undue influence occurs when a person does not freely exercise his or her own free will as a result of another person's influence. (CC 1670.5)
  • The law generally allows a judge to refuse to enforce a contract or contract term that is unconscionable (grossly unfair). (CC 1670.5)
  • Generally, the contract must be supported by consideration. Consideration is usually what you and the other person exchange in the bargain (for example, a promise or money.) It prevents contracts in which one party gets something for nothing. (CC 1605)


For example, when you are buying a lamp, you are bargaining for the lamp and the merchant is bargaining for the money in exchange. If a friend simply promises to give you a lamp, and you make no promise to pay or give something in exchange for it, you have not given consideration, and the law will not enforce your friend's promise to give you the lamp.


However, the law does not require that the exchange be fair or equal for both parties. If you agree to pay $50 for an item that is, in act, worth $2, you will ordinarily be held to your agreement, unless the court finds it to be unconscionable."


  • Specific laws apply to certain contracts such as retail installment sales, home improvement contracts, insurance, and the sale of land, all of which must be in writing. CC 1605
  • If you signed a contract to purchase a product and the product doesn't conform with the contract (the product is not what the contracts says it is, or is defective), you can cancel the contract under most circumstances, if the non-conformance is a major one. CC 2601, 2711 (1)


Before Signing A Contract:

  • Read the contract carefully. Make sure you understand all of it. If you don't like what you see, don't sign. CC 2601, 2711(1)
  • If you don't understand the contract, take it home overnight. Don't rush into signing anything, especially if the salesperson insists that it be signed right away. Remember: You'll have to live with what you sign. CC 2601, 2711(1)
  • Discuss any important or complex contract with a close friend or attorney. Be sure that other businesses aren't offering a better deal. CC 2601, 2711(1)
  • If you don't like what the contract says, ask the business to cross out words you don't like, and add words that you believe should be there. Don't be afraid to add terms if the matter is important to you. A merchant who really wants to close the deal may agree to your changes. CC 2601, 2711(1)

However, be aware that many merchants will not change their contracts under any circumstances. Also, if the contract is preprinted on a form, it is usually offered to you on a "take it or leave it" basis. In that situation, it's usually best to refuse it if it doesn't look right. CC 2601, 2711(1)


  • If the salesperson has made oral promises that are not written in the contract, insist that they be put into the contract, whether the contract is preprinted or not. It's okay if the inserted changes are handwritten. Don't do business with a company that won't put its oral promises into writing. CC 2601, 2711(1)


Contracts That Can Be Legally Canceled:

The following contracts can be legally canceled within the designated time periods, or cooling-off periods. The number of days that you have to cancel a contract refer to business days. Do not include Sundays and holidays when you count the days. Begin counting the days on the day after you sign the contract.



One day:

  • Unlawful Detainer Assistants B & P 6408(e)


Three days:

  • Contracts (usually for second mortgage loans or home improvement) in which a lien can be placed on the consumer's home {15 U.S.C. 1601(a) and C.F.R. 226.23(a)}
  • Dating services CC 1694.1
  • Dental services CC 1689.3
  • Discount buying services CC 1812.118
  • Employment counseling services CC 1812.511(a)(6)
  • Home security transactions 12 C.F.R. 226.23
  • Home solicitation sales (door-to-door sales) CC 1689.5
  • Immigration consultant services B & P Code 22442(e)
  • Job listing services CC 1812.516
  • Membership camping contracts (if buyer visits site) CC 1812.303
  • Mortgage foreclosure consultant services CC 2945.3
  • Seller assisted marketing plans CC 1812.209
  • Seminar sales CC 1689.20
  • Timeshares B & PC 11024
  • Water treatment devices B & PC 17577.3
  • Weight-loss services CC 1694.6


Five Days:

  • Credit repair services CC 1789.16
  • Health studio services CC 1812.85(b)
  • Sales of home equity during foreclosure CC 1695.4
  • Vocational school courses EC 94317


Seven Days:

  • Home Repair or Restoration Contracts Following a Disaster contracts allow a seven business day cancellation period.
  • Personal emergency response units CC 1689.6


Eight Days:

  • Home Study or Correspondence Vocational School Courses contracts allow eight business day cancellation period. Ed. Code 94312(d)(1), 94317(a)


Ten Days:

  • Membership camping contracts (if buyer doesn't visit site) CC 1689.6


Fourteen Days:

  • Subdivided lands sales B & PC 11028


Thirty Days:

  • Mail/telephone sales (When order has not been filled) B & P 17538(a)
  • Service contracts ("extended warranties") CC 1794.41(a)(4)(A)
  • Unfulfilled mail order/telephone sales B & PC 17538(a)


Sixty Days:

  • Service contracts (for new motor vehicles only) CC 1794.41 (a)(4)(A)


Six Months:

  • Dance studio services CC 1812.54(b)


Indefinite:

  • Service contracts (with penalty) CC 1794.41(a)(4)(B)
  • Vocational schools (pro rata refund upon withdrawal at any time) EC 94318, 94318.5


How To Cancel A Contract

  • Promptly notify the other party of your decision to cancel.
  • Return or offer to return whatever you have received from the other party, on the condition that the other party returns what he or she received from you.
  • Give your cancellation notice in writing to the other party, and give a copy to anyone else who is involved in the transaction. The cancellation notice you receive from the seller might also describe other ways that you can cancel the contract.
  • If you purchased something from the other party, he or she usually must return your money within 10 days after receiving your cancellation notice. However, the contract may state another time period for the return of your money, which you'll usually have to abide by unless it's unreasonable.


Where To Go For Help

  • If you have a question about whether a contract you have signed or are thinking about signing is legally binding, it's best to talk with an attorney. Contact your local legal aid society (listed in the white pages of your phone book under Legal Aid), or a private attorney.
  • Often, the type of contract you sign will determine which agency you should contact for assistance if problems occur. For example, questions about contracts for a new car should be directed to the Department of Motor Vehicles.


Guide to Abbreviations:
CC = Civil Code
B & P = Business and Professions Code
Ed. Code = Educational Code
CFR = Code of Federal Regulations
Com. Code = Commercial Code



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