Contracts are how a Texas business makes money, manages risk, and protects its relationships with customers, suppliers, employees, and investors. A Texas business contracts attorney drafts, reviews, and negotiates those agreements with Texas law in mind, including the Texas version of the Uniform Commercial Code, the state’s statutes of frauds and limitations, its unusual rules for indemnity clauses, its noncompete statute, and consumer-protection laws such as the Deceptive Trade Practices Act. Small wording choices in a Texas contract can decide whether a clause is enforced at all.
Holmes Law is the practice of Michael Holmes, an attorney licensed in Texas who works remotely with businesses throughout the state. This page covers the Texas contract law points that come up most often in commercial agreements and where Texas departs from other states. It is general information rather than legal advice, and it is part of Holmes Law’s Texas business law practice.
Contract Formation and the Texas UCC
Most Texas contracts are governed by common-law contract principles: offer, acceptance, consideration, and mutual assent to essential terms. Contracts for the sale of goods, however, are governed by Chapter 2 of the Texas Business and Commerce Code, which is Texas’s adoption of Article 2 of the Uniform Commercial Code. Chapter 2 supplies default terms for price, delivery, warranties, risk of loss, and remedies when the parties have not agreed otherwise, and it changes some common-law rules. For example, Section 2.207 addresses the “battle of the forms,” in which a buyer’s purchase order and a seller’s acknowledgment contain different terms, and it can allow a contract to form even when the forms do not match.
Chapter 2 also creates implied warranties of merchantability and fitness for a particular purpose. Sellers who want to disclaim them must follow the statute’s requirements, including conspicuousness and, for merchantability, specific language. Businesses that sell both goods and services, such as equipment with installation, should consider which body of law will apply, because Texas courts look at the essence of the transaction.
Leases of goods fall under Chapter 2A, and secured transactions, such as a lender’s security interest in equipment or inventory, fall under Chapter 9. A contract that involves financing, collateral, or leasing should be drafted with those chapters in mind.
The Texas Statute of Frauds
Texas enforces many oral contracts, but some agreements must be in writing and signed by the party to be charged. The general statute of frauds in Section 26.01 of the Texas Business and Commerce Code covers, among others:
- Contracts for the sale of real estate and leases of real estate for longer than one year.
- Agreements that cannot be performed within one year from the date they are made.
- Promises to answer for the debt of another, such as personal guaranties.
- Promises made in consideration of marriage or nonmarital cohabitation.
Section 26.02 separately requires loan agreements involving more than $50,000 from a financial institution to be in writing, which limits borrowers’ ability to rely on oral promises by lenders. Under the UCC, Section 2.201 generally requires a signed writing for a contract for the sale of goods for $500 or more, subject to exceptions such as specially manufactured goods and goods that have been received and accepted.
Even when the statute of frauds does not apply, a written contract is the best evidence of the deal. Many Texas contract disputes involve an email chain or a handshake that each side remembers differently.
Electronic Signatures and Records
Texas adopted the Uniform Electronic Transactions Act as Chapter 322 of the Texas Business and Commerce Code. Under UETA, a record or signature may not be denied legal effect solely because it is in electronic form, and an electronic signature satisfies a law requiring a signature, provided the parties have agreed to conduct the transaction electronically. The federal E-SIGN Act works alongside it. As a result, most Texas commercial contracts can be signed through e-signature platforms. Certain documents, such as some real property records, wills, and specific consumer notices, have separate formalities, so it is worth confirming before relying on an electronic signature for those.
Limitations Periods for Contract Claims
In Texas, a claim for breach of a written or oral contract generally must be filed within four years after the claim accrues, under Sections 16.004 and 16.051 of the Texas Civil Practice and Remedies Code. Claims for breach of a contract for the sale of goods are also subject to a four-year period under Section 2.725 of the Business and Commerce Code, which allows the parties to shorten the period to not less than one year in their original agreement.
Outside the UCC, Texas limits the parties’ ability to shorten the time to sue. Section 16.070 of the Civil Practice and Remedies Code provides that a contract may not limit the time to bring suit on the contract to a period shorter than two years, with limited exceptions. A clause purporting to require suit within, say, six months is generally void under that statute. Notice-of-claim provisions, which require a party to give prompt notice of a claim rather than to sue, are treated differently and should be drafted with the statute in view.
Choice of Law, Venue, and Dispute Resolution
Texas generally honors a contract’s choice of law under the principles of the Restatement (Second) of Conflict of Laws, as the Texas Supreme Court applied in DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990), unless the chosen law has no substantial relationship to the parties or the transaction, or applying it would violate a fundamental policy of a state with a materially greater interest. For larger deals, Chapter 271 of the Business and Commerce Code gives parties to a “qualified transaction,” generally one involving at least $1 million in consideration or credit, greater certainty that their choice of law will be enforced.
Venue works similarly. Section 15.020 of the Civil Practice and Remedies Code enforces written venue agreements in a “major transaction,” defined as a transaction evidenced by a written agreement with an aggregate stated value of $1 million or more, excluding consumer and personal injury matters. Below that threshold, Texas’s mandatory and general venue rules may override a contractual venue clause, although forum-selection clauses choosing another state’s courts are commonly enforced.
Texas also offers specialized forums. The Texas Business Court, which began operating on September 1, 2024, hears certain commercial and governance disputes, and 2025 legislation (House Bill 40) lowered the amount-in-controversy threshold for many covered commercial disputes from $10 million to $5 million. Parties can also agree to arbitration, which is enforceable under the Federal Arbitration Act and the Texas Arbitration Act in Chapter 171 of the Civil Practice and Remedies Code. Jury waivers are generally enforced in Texas when they are knowing and voluntary, which courts assess by looking at factors such as conspicuousness and the parties’ sophistication.
Indemnity and Limitation of Liability Clauses
Texas has some of the most demanding rules in the country for clauses that shift liability for a party’s own negligence. Under the express negligence doctrine adopted in Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex. 1987), a party seeking indemnity for the consequences of its own negligence must express that intent in specific terms within the four corners of the contract. Under Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993), such provisions and releases must also satisfy the fair notice requirement of conspicuousness, typically bold or capitalized text or other formatting that makes the clause stand out. A clause that fails either test can be unenforceable even between sophisticated parties.
Construction contracts face additional limits. Chapter 151 of the Texas Insurance Code generally voids provisions in many construction contracts that require one party to indemnify or insure another against claims caused by the indemnitee’s own negligence, subject to exceptions such as certain employee injury claims.
Limitation-of-liability clauses, consequential damages waivers, and caps on damages are generally enforceable in Texas commercial contracts between businesses, but they should be drafted clearly, placed conspicuously when they limit liability for a party’s own negligence, and coordinated with insurance requirements. Liquidated damages clauses are enforced when the harm from breach is difficult to estimate and the amount is a reasonable forecast of just compensation, as the Texas Supreme Court explained in Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991), and courts may refuse to enforce a clause that operates as a penalty.
Noncompete and Non-Solicitation Agreements in Texas
Texas enforces reasonable noncompetes by statute rather than by common law. Under Section 15.50 of the Texas Business and Commerce Code, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time it is made, and it contains limitations as to time, geographic area, and scope of activity that are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee. Texas Supreme Court cases, including Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), and Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), hold that consideration such as confidential information or stock options that are reasonably related to protecting the employer’s interests can support a noncompete.
If a covenant is overbroad, Section 15.51 directs the court to reform it to a reasonable scope rather than void it, although an employer that sought to enforce an unreasonable covenant it knew was overbroad may face limits on damages and fee exposure. Non-solicitation agreements covering customers and employees are generally analyzed under the same framework.
Health Care Practitioners
Effective September 1, 2025, Senate Bill 1318 tightened the rules for health care noncompetes. For agreements entered into or renewed on or after that date, noncompetes for physicians, and under new Section 15.501 for dentists, nurses, and physician assistants, are limited to one year after termination and a radius of five miles, and any buyout cannot exceed the practitioner’s total annual salary and wages at termination. The terms must be clearly and conspicuously stated in writing, and a physician noncompete is void if the physician is involuntarily discharged without good cause. Health care employers and practices should review their forms against these rules.
The Federal Picture
The Federal Trade Commission’s 2024 rule that would have banned most noncompetes was set aside by a federal court in Texas in Ryan LLC v. FTC, and in September 2025 the FTC moved to accede to that vacatur and abandon its appeals. The FTC has signaled that it will continue to pursue case-by-case enforcement against noncompetes it considers unfair, so employers should still keep covenants narrowly tailored.
Attorney’s Fees, Prompt Pay, and Consumer Statutes
Unlike most states, Texas allows recovery of attorney’s fees by statute for a successful breach of contract claim. Chapter 38 of the Civil Practice and Remedies Code permits a prevailing claimant to recover reasonable fees on a claim for an oral or written contract, and a 2021 amendment broadened the defendants against whom fees can be recovered to include LLCs, partnerships, and other organizations, not only individuals and corporations. Many contracts add a prevailing-party fee clause to make fee-shifting mutual.
Texas also has prompt pay statutes. Chapter 28 of the Texas Property Code sets payment deadlines and interest for private construction contracts, and Chapter 2251 of the Texas Government Code sets payment timelines for many contracts with state and local governmental entities. Businesses doing construction or government work should understand how those statutes interact with their payment terms.
The Texas Deceptive Trade Practices-Consumer Protection Act, Subchapter E of Chapter 17 of the Business and Commerce Code, applies to many transactions involving “consumers,” which can include businesses. The DTPA excludes business consumers with assets of $25 million or more and exempts certain large transactions, such as transactions involving total consideration by the consumer of more than $500,000 (other than a transaction involving the consumer’s residence) and certain transactions of more than $100,000 where the consumer is represented by legal counsel in the negotiations. A DTPA waiver must meet specific statutory requirements, including conspicuous language and representation by counsel, under Section 17.42.
Common Texas Business Contracts
Holmes Law drafts and reviews a wide range of commercial agreements for Texas businesses, including:
- Customer and master services agreements, statements of work, and terms and conditions.
- Supply, distribution, and purchase agreements for goods.
- Independent contractor and consulting agreements.
- Confidentiality and nondisclosure agreements.
- Employment agreements with confidentiality, noncompete, and non-solicitation provisions.
- Commercial leases and equipment leases, coordinated with Holmes Law’s Texas real estate practice.
- Promissory notes, guaranties, and security agreements.
Contracts involving ownership of the business itself, such as company agreements and buy-sell agreements, are covered on the pages for Texas operating and shareholder agreements and Texas buy-sell agreements. Signing contracts in the correct entity name, with the signer’s title, also matters; Holmes Law’s page on Texas entity formation explains why.
Frequently Asked Questions
How long do I have to sue for breach of contract in Texas?
Generally four years from when the claim accrues, for both written and oral contracts and for sales of goods under the UCC. The parties can shorten a UCC period to not less than one year in the original agreement, but outside the UCC Texas generally voids contractual limits shorter than two years.
Are noncompetes enforceable in Texas?
Yes, if they meet Section 15.50: the covenant must be part of an otherwise enforceable agreement and contain reasonable limits on time, geography, and scope of activity. Courts reform overbroad covenants. Special limits apply to physicians, dentists, nurses, and physician assistants for agreements entered into or renewed on or after September 1, 2025.
Why does Texas require indemnity clauses to be conspicuous?
Texas’s fair notice requirements, from Dresser Industries and related cases, require that a clause shifting responsibility for a party’s own negligence be conspicuous and satisfy the express negligence doctrine. If the clause is buried in fine print or does not expressly mention the indemnitee’s negligence, a Texas court may refuse to enforce it.
Can I sign a Texas contract electronically?
For most commercial contracts, yes. Texas’s version of the Uniform Electronic Transactions Act gives electronic signatures the same effect as handwritten ones when the parties have agreed to transact electronically. Some documents have separate formalities, so confirm before signing a real estate or estate planning document electronically.
Can I recover attorney’s fees if the other side breaches?
Often. Chapter 38 of the Civil Practice and Remedies Code allows a prevailing claimant to recover reasonable attorney’s fees on a contract claim against individuals and organizations. A contractual fee clause can extend fee recovery to a prevailing defendant as well.
Speak With a Texas Business Contracts Attorney
Texas contract law rewards careful drafting: conspicuous indemnity language, realistic limitations clauses, enforceable noncompetes, and thoughtful choice of law and forum can decide the outcome of a dispute before it starts. Holmes Law drafts, reviews, and negotiates contracts for Texas businesses through a remote practice that fits your schedule. To discuss your agreement with a Texas business contracts attorney, contact Holmes Law.