De Facto Contract: Everything You Need to Know
A de facto contract refers to an agreement that is intended to convey property from one person to another but is defective in some way.3 min read
A de facto contract refers to an agreement that is intended to convey property from one person to another but is defective in some way. One example is a contract that lacks consideration. A de facto contract is still legally binding as long as the agreement does not violate any law or public policy.
De Facto Terminology
You might hear the term de facto used in a variety of ways:
- De facto is used to describe a government, an officer, a past action, or state of affairs that must be accepted for all practical purposes but is illegitimate or illegal. This includes a status, an office, or a position that exists under a claim or color of right, like a de facto corporation.
- A de facto corporation is one that was given legal status even though it did not follow all statutory formalities as required by law to form a corporation. The state is the only one with the authority to challenge a de facto corporation's existence.
- De facto is also used in the scenario “wife de facto,” in which a marriage is voidable by decree. This is different from a wife de jure, which is a lawful wife. The term de jure means legitimate, constitutional, or rightful.
- Another use of de facto is with de facto segregation, in which members of different races are separated by a variety of social and economic factors, rather than by virtue of government statutes.
Frequently Asked Questions About De Facto Contracts
A number of questions might arise when it comes to understanding de facto contracts. One of the main questions revolves around a company that charges for food delivery. A consumer might question the delivery fee because the company's website advertises “no memberships, no contracts, no minimums.” What happens if you decide to order something from the company — are you agreeing to the fee? Does this violate the company's claim of no contracts?
The claim of no contracts means there is no agreement or standing written contract as it relates to delivering food, not the delivery fee. The delivery fee is what would likely be considered an “offer to treat,” or a unilateral contract. The former would be known as a “bilateral contract,” which is the most well-known type of contract, in which two parties make a promise or consideration.
Unilateral contracts are lesser-known, but also very common. For example, say you park your vehicle in a public parking lot or you buy a ticket for a sporting event. When you purchase the ticket, there are contractual implications, sometimes even included on the backside of the ticket. These are terms you did not negotiate, but by attending the event, you are fulfilling a condition precedent. This binds you to the offer's terms.
This method of thinking is also how the food delivery service operates. They deliver food based on a set fee you pay rather than a contract. When you place the food order, you are entering into a unilateral contract to pay the delivery fee.
Another question related to de facto contracts is whether there can be a de facto termination for convenience. This often relates to construction contracts. The right to terminate a contract for convenience without any fault on the contractor is typically reserved for project owners. An advanced written notice triggers the termination. The contractor will be paid:
- The cost of any work performed before the termination.
- Profit on the costs.
- Termination expenses.
A termination for convenience will compensate the contractor for any work performed, while absolving the owner from a wrongful termination claim or liability for breach of contract.
There are also questions about what happens when relationships between contractors and owners start to break down, making it extremely toxic to the point they don't want to deal with each other altogether. Could this be a de facto termination of convenience? It is definitely questionable. At least in Connecticut, a court ruled it did not qualify as one. Instead, the project owner must make a formal request to terminate the contract in accordance with the contract's express terms.
If you need help understanding de facto contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.