Contracts And The Importance Of Background Law

• Jurisdiction: Texas,United States
• Law Firm: Freeman Law
• Subject Matter: Employment and HR, Real Estate and Construction, Contract of Employment, Construction & Planning, Real Estate
• Author: Mr Micah Miller
• Published date: 25 September 2023

Introduction

Most people are relatively familiar with the importance of contracts when doing business or transferring property interests. They often rely on a general understanding of freedom of contract and the enforceability of voluntary contractual commitments, to enter contracts without legal advice.

Mandatory Legal Norms & Contracts

Less people are aware of how significantly background law can impact contracts, whether cemented in judicially developed case law, legislatively created statutes, or rules and regulations adopted by administrative agencies. When legal norms are mandatory, they are not waivable by contract, and they can have significant consequences on intended contractual arrangements.

Potential Consequences

Failure to consider background law can have an array of consequences, including fines or penalties. It can result in the non-enforceability of a contractual provision. In certain situations, it can even result in the nullity of a contract. For reasons like these (and many others), it is nearly always a good idea to consult with a qualified attorney when creating important contracts. This is true when creating contractual templates to be used repeatedly by a business, and when contracts address a sensitive subject matter like real property rights, transactions in securities, or employment. It should almost go without saying (but people sometimes need reminding) that this is especially the case when the value underlying an agreement is substantial.

Examples

The below paragraphs offer a few specific examples of how background law can impact contractual relationships. As the reader will note, failure to contemplate them can lead to extremely adverse consequences.

Exculpation Provisions

If a party wishes to disclaim all liability in connection with a given contractual relationship'including for their own gross negligence'the contract may be required to meet certain formalities to qualify for enforcement. In Texas, disclaiming liability for one's own negligence requires compliance with the judicially developed "fair notice doctrine." Ethyl Corporation, et al v. Daniel Construction Company 725 S.W.2d 705 (Tex. 1987). Generally, the fair notice doctrine requires that that contractual intent to absolve a party from even its own negligence be clearly and plainly expressed and that the provision meet certain "conspicuousness" requirements.

If a contractual provision meant to transfer all risk for a party's own negligence to another party fails...