Learn the basics of contract law applicable to consumer purchases, including what contracts must be in writing, how to negotiate and review a contract, and what to do if a contract is breached. If you would like to file a complaint about a business, please use our online service. This information is also available as a downloadable Word document.
- When is a Consumer Contract Binding?
A contract is a legally enforceable promise between you and the seller. It describes the responsibility buyers and sellers have to each other when goods or services are exchanged. Contracts can be written, oral, or even implied.
A binding contract can be a lease on an apartment or a purchase order for a new car. It can be a written agreement to buy a set of encyclopedias from a door-to-door salesperson or an oral promise to pay a babysitter $20 per hour for taking care of your child. Even the purchase of a can of soup from a supermarket is a contract.
Generally, for a contract to be legally enforceable, it must satisfy four requirements:
- There must be an offer to perform an act;
- There must be an acceptance of that offer;
- The act to be performed must be of some value (“consideration”) to both parties;
- There must be mutual understanding by both parties as to the basic obligations of the contract.[i]
- If even one of these four requirements is not met, the contract might not be legally enforceable. A court will not enforce an agreement as a contract if it is missing essential terms or is otherwise too vague or indefinite as to the nature and the extent of the parties’ obligations.
[i]In cases where both parties make a mistake and enter into a contract that does not express their mutual interests, courts may order that the contract be voided, as if it had never been entered into. See Miller v. Lentine, 495 A.2d 1229, 1231 (Me. 1985).
- Contracts Required to Be in Writing
The Maine Uniform Commercial Code (U.C.C.) regulates contracts for the sale of goods by a merchant to consumers.[i] The U.C.C. and other statutory provisions, including a law known as the Statute of Frauds,[ii] require certain contracts to be in writing before a court will enforce them. Examples of such contracts are:
- Contracts for the sale of goods costing $500 or more;[iii]
- Contracts for the sale of land;[iv]
- Contracts which cannot be performed within one year; for example, if you agree today to move into a new apartment the first of next month and rent for a year, your rental agreement must be in writing because the terms of the contract cannot be completed within one year of the date on which you agreed;[v]
- Contracts in which you guarantee to pay the debt of another person;[vi]
- Contracts to pay debts legally discharged in a bankruptcy proceeding.[vii]
The U.C.C. sets forth three exceptions to the requirement of a written contract for goods costing $500 or more. These contracts are enforceable even if there is no written agreement:
- You ordered custom-made items (such as a tailored suit or drapes);[viii]
- You have already paid for goods or services or they have already been delivered and accepted;[ix]
- You admit in court that, in fact, you did have a contract.[x]
[i] See generally 11 M.R.S.A. §§ 2-101 to 2-725.
[ii] 33 M.R.S.A. §§ 51-53. The purpose of the Statute of Frauds is to “prevent perjury and fraud.” However, a defendant in a contract enforcement action may waive the statute’s protection, allow verbal evidence of the contract, and become bound by it. Dehahn v. Innes, 356 A.2d 711, 717-18 (Me. 1976).
[iii] 11 M.R.S.A. § 2-201(1).
[iv] 33 M.R.S.A. § 51(4).
[v] 33 M.R.S.A. § 51(5).
[vi] 33 M.R.S.A. § 51(2).
[vii] 33 M.R.S.A. § 51(6).
[viii] 11 M.R.S.A. § 2-201(3)(a).
[ix] 11 M.R.S.A. § 2-201(3)(c).
[x] 11 M.R.S.A. § 2-201(3)(b).
- Unenforceable Contracts
Courts have often refused to enforce contracts that are significantly unfair and lacking in good faith.[i] Often they are unconscionable[ii] contracts in which one of the four elements of the contract (see § 2.1) is explicitly or implicitly missing. Here are some of the more common kinds of unenforceable contracts:
- You are incapable of understanding the contract because you are insane, senile or otherwise mentally deficient.[iii]
- You are too young to enter into a legally binding agreement. If you enter into a contract when you are a minor (younger than 18) and still living with your parents, the contract is not enforceable unless you agree to the terms of the contract in writing when you turn 18 or unless a legal guardian also signs the contract. You can cancel the contract and receive back the entire purchase price. The exceptions to this rule are when the contract is for real estate, or higher education, or for an actual “necessity” such as needed food, shelter, or educational or medical expenses.[iv] Merchants sell to minors at their own risk. Once the minor becomes an adult, the minor can “ratify” the contract and the contract then becomes binding.
- The performance of the contract calls for an illegal act.
- You are tricked into signing. Deceit—intentional or unintentional—which misleads you into signing the contract renders the contract unenforceable. Such deceit can include the failure to disclose a material fact (a fact that is known to the seller and which would change your decision to purchase the item at the agreed price).
- You are coercively forced to sign the contract. For example, a contract is not valid if you sign it against your will or under threat of physical harm.
- You sign under undue influence. A parent, child, doctor, someone upon whom you are financially dependent or anyone else who uses your special relationship to pressure you to sign a contract is exercising undue influence. If you can prove undue influence, you can have the contract voided.
- Both parties to the contract make the same mistake. This is known as a “mutual mistake.” If only one party makes a mistake either in making an offer or in accepting one, the contract is binding and enforceable. A unilateral mistake is grounds for voiding a contract only if the other party had reason to know that the mistaken party was operating under a misimpression.
- The contract’s terms are unconscionable (shocking to the conscience). Some courts have ruled contracts unconscionable because the consumer was charged an extremely high price or because unfair terms were not subject to bargaining between the parties (a contract of adhesion).
- The contract contains misleading terms—usually in small print—buried in a paragraph having little or nothing to do with the overall agreement. The contract, or at least those terms, may be “unconscionable” and unenforceable.
- A merchant’s sales technique was so deceptive or the contract was so unfair as to be in violation of the Maine Unfair Trade Practices Act (5 M.R.S.A. §§ 205-A -214) (see Chapter 3 of this Guide, Unfair Trade Practices in Maine).
[i] See 33 M.R.S.A. § 1-203; Restatement (Second) Of Contracts § 205 (1979).
[ii] See 11 M.R.S.A. § 2-302 of the U.C.C., which states that courts may refuse to enforce “unconscionable” contracts. A contract can be unconscionable both procedurally (unfairness in the formation of the contract) and substantively (the terms are disproportionately favorable to the more powerful party).
[iii] Restatement (Second) of Contracts, § 178(1) (1981).
[iv] 33 M.R.S.A. § 52.
- Parties to a Contract
In most contract negotiations, a consumer will deal with an agent (a salesperson or employee of the business) and not the principal (the business itself). Generally, principals are bound by their agents’ actions, unless they are outside the scope of what the agent can do on behalf of the principal.
Even if the agent is acting outside the scope of the agent’s responsibility, a principal can ratify the agent’s actions. Suppose a door-to-door salesperson of vacuum cleaners promises in writing a more generous warranty than is normally offered for the vacuum cleaner. The salesperson’s employer, and even the manufacturer of the vacuum cleaner, will be bound by the salesperson’s promise if it accepts the consumer’s contract.
In many contract disputes, the first step is determining the contractual duties of the parties. For example, suppose you have hired a general contractor to build an addition to your house. The general contractor then hires a plumber as a subcontractor to install the required plumbing and the plumber’s work turns out to be defective. Is the plumber liable to you for breach of contract? Generally no, because your contract is with the general contractor, not the plumber. If you cannot resolve the dispute over the shoddy plumbing work and the court orders the general contractor to pay you damages (for example, your costs to repair the plumbing), the general contractor can then look to the plumber for relief.
The terms of many “form” contracts are not negotiated. Before signing a contract, make sure you understand what your obligations will be when you purchase an item.
- The Difference Between Express and Implied Warranties
A warranty is a promise by a seller of the quality and dependability of the goods or services you buy. Warranties can be express or implied.
Express warranties are oral or written promises the seller or manufacturer makes about a product or service. Sometimes both the seller and the manufacturer give express warranties. Express warranties are not required by law, but they usually accompany most quality products.[i]
In addition to express warranties, under Maine law whenever you purchase a new or used consumer good or service (except for used cars) you automatically receive an implied warranty. This is true even when the seller or manufacturer does not make an express warranty. When you do have an express warranty, the implied warranty may still provide you with additional coverage and remain in effect even after your express warranty expires. As a Maine consumer you have probably seen written warranties that say you have no implied warranties. You have probably also seen the following statement:
Some states do not allow limitations on how long an implied warranty lasts, so the above limitation may not apply to you.
Maine is one of those states. Under Maine law, when purchasing consumer goods and services, your implied warranty rights cannot be modified or limited in any way.[ii] So, as long as you buy in Maine, you can ignore language that attempts to limit your implied warranty rights. If a seller relies on it, you can tell them it doesn’t apply to you because you bought the item in Maine.
There are two types of implied warranties:
- The warranty of merchantability promises that the product you buy is fit for ordinary use.[iii] That is, a lawn mower must mow; a food processor must process food; a wood splitter must split wood.
- The warranty of fitness for a particular purpose, as its name implies, promises that the product you buy will be suitable for a specific use.[iv] When you buy a product based on the seller’s representation that it can be used for a particular purpose, the advice creates an implied warranty of fitness for a particular purpose. For instance, if you rely on a seller’s expertise to help you choose paint for your car, the seller is creating an implied warranty that the paint is fit for the particular purpose of painting your car. If you apply the paint appropriately, and it flakes off a few weeks later, you have recourse against the seller under the implied warranty of fitness for a particular purpose. For a more thorough discussion of implied warranty rights, see Chapter 4 of this Guide.
[i] In addition to express warranties consumers are sometimes asked to purchase a “service contract.” As the name implies, service contracts are contracts and not warranties that are offered with the item. Though some sellers refer to them as “extended warranties,” they are not warranties. Warranties come with products at no extra cost. A service contract is a promise of service in exchange for fee. A service contract should not be mandatory; you should be free to decline it. If you have a good warranty, you probably will not need to buy the extra protection a service contract offers. In fact, you may be buying coverage you already have under your express or implied warranty. As with any other contract, read all the provisions and weigh the terms carefully before you buy a service contract. See Chapter 6 of this Guide.
[ii]11 M.R.S.A. § 2-316(5)
[iii] 11 M.R.S.A. § 2-314.
[iv] 11 M.R.S.A. § 2-315.
- When Is a Contract Breached
If a party does not perform the terms of the agreement, the contract has been “breached.” If a carpenter fails to finish the job or a home buyer does not make the entire payment for a new home, a breach of contract has occurred. The most common remedy for the non-breaching party to the contract is financial in nature, referred to as damages. But, depending on the extent and harm resulting from the breach, there may be other remedies, such as cancellation of the contract so that the non-breaching party is excused from any future performance of the contract. Parties to a contract often disagree about whether a breach is major or minor, or whether there has been a breach at all. It is important for consumers to communicate and document in the contract or at least in a writing that supplements the contract what their expectations are regarding performance. Otherwise, a business might argue that the contract was not clear as to what was required.
- Remedies for Breach of Contract
When a party to a contract fails to do what they agreed to, this is known as a breach of contract. What remedy the non-breaching party is entitled to depends on the particular contract and the nature of the breach. Generally, the breach must be “material” to entitle the non-breaching party to a remedy.
Contract for Services
When a contract for services is breached, the non-breaching party may recover damages for the value of the services that were not performed, not the total contract price. The non-breaching party may also be entitled to reimbursement for incurred expenses. For example, if a garage mechanic fails to complete an agreed-to car repair and the car owner has to tow the car to another garage to have the repair completed, the damages would include the cost of the tow as well as any extra cost of the second round of repairs, i.e. if the second mechanic charges more than what the first mechanic was charging for the same work. If the car owner did not pay the first garage mechanic, then there may be limited damages for the breach of contract. However, if the car owner paid the first mechanic in full and the second mechanic charges more for the same work, the owner’s damages may include both the amount that was overpaid to the first mechanic and the extra cost incurred at the second mechanic.
Contract for Goods
When consumers purchase defective goods, they are protected by laws such as the Uniform Commercial Code (U.C.C.), which establishes rules for express and implied warranties (see Chapter 4, Consumer Goods and the Maine Express and Implied Warranty Law). When there is a serious breach of express or implied warranty, the buyer may be able to sue to dissolve the contract (rescission) and recover the entire price (restitution). Or the consumer may sue on the breach of express warranty and receive free repairs, a replacement product, or damages.
Measure of Damages – Contracts for Goods
The measure of damages for the breach of contract for the sale of goods is the difference between the actual value of the product received and the value of the product as it was warranted to the buyer.[i] In addition to reimbursement, repair, or replacement of a defective product, under Maine law, buyers may also be entitled to recover their “incidental” and “consequential” damages (expenses related to a contract breach).[ii]
Specific Performance
Normally, the remedy for a breach of contract is damages, i.e. the breaching party is ordered to pay for the actual damages incurred by the non-breaching party. Yet there are times when damages do not provide adequate relief. In such cases, the court may find the only solution is “specific performance” Generally, “specific performance” is an order that a person undertake a specific act. For example, when a merchant sells a defective product and breaches the warranty for that product, the court might order the merchant to repair or replace the product. Repair and replacement are two types of specific performance.
Specific performance is often granted in disputes over real estate sales. Individual pieces of property are considered unique and sometimes monetary awards are not a sufficient remedy. If someone signs a contract to sell a house to one buyer, then attempts to sell it to a second buyer at a higher price, a court order can be sought to stop the sale to the second buyer. Conversely, specific performance is less likely to be awarded if the product or property at issue possesses no unique characteristics.
Specific performance is rarely ordered in “personal services” contracts, which are usually employment contracts. An opera singer cannot be forced to sing. A baseball player cannot be required to swing a bat. If a personal service contract is broken by the employee, the employee will most likely have to pay back the employer for any reasonable damages.
Keep in mind that the person who is injured by a breach of contract must attempt to mitigate (minimize) the damages.[iii]
No Punitive Damages for Breach of Contract
Beyond awarding damages or specific performance, a court will not punish a party for breaching a contract. Punitive damages are not available for breach of contract.[iv] However, if the breaching party also engaged in tortious conduct, then punitive damages may be available, but only if they acted with malice.
Attorney Fees
The general rule is that attorney fees are not recoverable from a lawsuit over a contract dispute. Exceptions to the rule arise when the contract specifies that attorney fees be paid in case of a breach or when a specific state or federal statute authorizes the court to award these fees. The Maine Unfair Trade Practices Act, 5 M.R.S.A. § 213(2), is one such statute. See Chapter 3 of this Guide for more information about the Maine Unfair Trade Practices Act.
[i]Phillips v. Ripley Fletcher Co., 541 A.2d 946, 950 (Me. 1988).
[ii] 11 M.R.S.A. §§ 2-714, 2-715.
[iii]See Schiavi Mobile Homes, Inc. v. Gironda, 463 A.2d 722, 724-25 (Me. 1983) (the duty to mitigate damages is implicit in the U.C.C.’s “broad requirements of good faith, commercial reasonableness and fair dealing.”).
[iv] Drinkwater v. Patten Realty Corp., 563 A.2d 772, 776 (Me. 1989) (“No matter how egregious the breach, punitive damages are unavailable under Maine law for breach of contract[.]”).
- Contract Release
As part of the resolution of a contract dispute, the parties will sometimes agree to enter into a formal “release.” Maine law does not require release agreements, although many businesses will insist on them before providing relief to a consumer. In consumer contract disputes, a release will usually be drafted and proposed by the business and may be broader than necessary to resolve the specific dispute (for example, it may cover a wider category of claims or, possibly, all claims that the consumer might have against the business, even those unrelated to the present dispute). The release may also have additional language about future disputes between the parties, including binding arbitration provisions, remedy limitations, and jury waivers. Consumers are cautioned to read a release very carefully and to consult with an attorney if they have concerns or questions.
- Negotiating and Reviewing a Contract
For important, complex, and/or expensive transactions, the best practice is to have a lawyer assist you with the negotiation and review of a contract. However, there are many types of contracts that you may be able to negotiate and review yourself. Here are some basic principles when negotiating and contemplating a contract.
Get It in Writing
As mentioned earlier (see § 2.2 above), the Statute of Frauds requires that certain contracts must be in writing. Even if not required by law, is it advisable to have your contracts in writing, or at least the essential terms (quantity, price, timing).:
A Contract Is a Bargain
Remember that a contract is a bargain in which rights and obligations are allocated. As Justice Holmes said, “every contract is the acceptance of some inequality.”[1] The lesson is clear: negotiate! Do not be reluctant to suggest terms that are important to you or reject terms that disturb you. If a provision in a preprinted form contract is unfair, cross it out. If there is a provision governing damages for breach (a “liquidated damages clause”), read it carefully. If it is too onerous, cross it out or adjust the damages amount (see Chapter 5 of this Guide). All parties to a printed contract should initial any handwritten changes.
Contracts Should Be in “Plain English”
There are no magic phrases that transform everyday words into legally binding language. Remember to include these basics in any contract: the offer and its acceptance, each party’s obligations, and the money to be paid or act to be performed.
Read the Contract
Of course, you should always take the time to read the contract very carefully. Keep in mind the Latin phrase caveat emptor, which means, “let the buyer beware.” Read the fine print of any document. If you do not, you may be unpleasantly surprised. For instance, vehicle purchase contracts are usually quite detailed, causing many consumers to skip over the fine print. Unfortunately, many vehicle buyers later discover that they purchased insurance products that pay the lender, expensive service contracts, and/or other extras that they don’t need or want and that substantially increase the cost of the vehicle.
Casual Sales
A causal sale is a transaction between two people, neither of whom is a merchant. There may be fewer protections under Maine law for the consumer in such a transaction. For example, the implied warranties of the U.C.C. would not apply). Therefore, if you are the buyer in the transaction, and you have specific expectations or have received specific promises about the services or items being purchased, that should be reduced to writing.
Should You Sign the Contract?
Some contracts are not enforceable unless all parties sign.[2] Each person signing should also date his or her signature. Cross out any blank spaces to avoid troublesome additions after signing. All parties should receive a copy of the contract as soon as it has been signed. Be sure to keep a copy of the contract, including an electronic copy.
Are All Promises in Writing?
If your decision to enter into a contract was based in part on oral promises, make sure these promises are included in the written contract. The parol evidence rule may prohibit you from introducing oral evidence in a later contract dispute. All too often, mere oral promises are not admissible evidence. If there is not room on a form contract to insert additional terms, write the promises out on a separate page. Number the pages and refer to this separate page at the end of the form contract. All parties should sign and date this additional page.
Have You Reduced to Writing All Contract Changes?
A common theme in homeowner-versus-contractor disputes relates to contract changes. “We agreed to one price,” the homeowner says. “But you insisted on adding that extra work,” retorts the contractor. Maine law required change orders to be in writing if the total price of the contract, including the price of the change order, is for more than $3,000. Both parties should sign and date any change order. See Chapter 17 of this Guide for more information about home construction contracts.
Did You Guarantee (“Co-Sign”) a Contract Debt Only After Careful Thought?
Contemplate all the possible pitfalls before co-signing a contract as a guarantor. Certainly, don’t rush into it, even if the co-signer is a family member or a friend. Generally, guarantors take only the liabilities and receive no benefits of the underlying contract.