Contract primer for small businesses: exceptions to the general rules

As a small business owner you will need to know the basics of contract formation. This is true for your transactions with customers and with vendors. There is a lot of information about contracts floating around out there, and much of it is false or misleading. Relying on false information can cost you money.  Our first installment detailed some important basic contract rules for small business owners. Here, we will give you a quick primer on some of the exceptions to the basic rules of contracts to round out your contract knowledge.

Here are few exceptions to the basic rule of contract law:

Consent to a contract must be voluntary

  • If a contract is made under a threat, the contract is not valid. If a business refuses to give a person’s car back unless they pay $500.00 for changing the oil, the customer could probably sue and get the $500.00 back.

Contracts to do illegal acts or acts against public policy are not enforceable

  • If an electrician signs a contract to put some wiring in a house that is not legal, the customer could not force him or her to do it. A court would refuse to require an illegal act.

If either party to an offer dies, then the offer expires and cannot be accepted by the heirs

  • If a painter is hired to paint a portrait, but he dies before it is completed, his wife, for example, cannot finish it and require payment. However, a corporation does not ide, even if its owner does. If corporation is hired to build a building and the owner of the corporation dies, the heirs may take over the corporation, finish the job, and require payment.

Contracts made under misrepresentation are not enforceable

  • If someone tells you a car has 50,000 miles on it and you later discover it has 135,000 miles, you may be able to rescind the contract for fraud and misrepresentation.

The above is just a small sample of some of the relevant contract law that a small business owner will encounter. It pays to be knowledgeable in this area, so contact a lawyer or do more research on your own for a more in depth understanding of contract law.[1]

[1] Petrus, Desiree and Warda, Mark, Start a Business in Pennsylvania 61-65 Sphinx Legal (2006) 4th edition