What Is a Legal Document or Contract?
A legal contract is obviously a very common document which many individuals and businesses enter into every single day. Sometimes it can be difficult to work out whether you’ve entered into a legal contract or not; and this paper is designed to work out exactly that. If you have all the elements set out below in either a written or an oral agreement, then you’ve got a legal contract.
The Key Elements
An offer is the first element of a contract. It is important that the offer is very clear, detailed and easy to understand. If, for example, you are selling a business, the offer in the Sale of Business Agreement will need to include the exact parts of the business that you’re selling (goodwill, plant and equipment, etc). A vague offer is not an offer!
Obviously for a contract to be valid and binding the offer needs to be accepted! If you propose to sell your business to a competitor and make an offer, he will need to accept that offer in an unambiguous way for a contract to be formed.
The next step is to check whether there is consideration. Basically, the parties must be entering to the contract for a valid reason. Usually this is cash, but consideration can also come in the form of an action, or an agreement not to complete an action. A good example would be swapping a rake for a broom. You may not be exchanging cash, but you’re receiving consideration in the form of the rake or the broom. Furthermore, you could agree with another party not to disclose certain confidential information if the other party does likewise (perhaps by signing a Confidentiality Agreement), and in this case the consideration is an undertaking to not take a certain action.
The next step is to make sure that there is a clear intention to create legal relations. Generally if you have documented the contract and both signed it, it is pretty clear that there is an intention to create legal relations. Contracts are not always written though. If you enter into an oral agreement with a counter-party it sometimes be difficult to work out whether there is indeed an intention to create legal relations. This is one reason why having a written contract is a good idea!
The parties to a legal contract need to be competent. This basically means a party with severe mental disabilities will probably not be competent to enter into a contract. A young child is in a similar position.
Different Types of Contracts
It’s also important to keep in mind that there are different types of contracts. A contract can be oral or written. Unfortunately the courts are full of parties who agreed oral contracts – when they fall out, it is very difficult to work out who agreed to what! Get it in writing!
Finally, you should keep an eye out for implied contracts. If you order a takeaway coffee you are entering into an implied contract – it is implied that you’ll pay for the coffee once the barista has made it.