What is a contract?

What is a contract?

Posted on October 14th, 2009 Huis-Huis No comments

Know before you contract

Someone recently asked me what a contract is. Who that was, is not really important for the purposes of this post, so I’m not saying who.

Because this question is rather vague, I will answer it as if it was intended to be a question about contracts in general, even though I realise that the person was looking for information about real estate contracts specifically.

When you start dealing with contracts on a regular basis, as most people eventually do once they grow up, one forgets that you had to start at the start once. And quite frankly, the basics of contracts are not really as basic as all that, and probably not common sense at that.

So here goes my explanation of contracts: (Remember to let me know if I don’t make sense, or if you like what you see.)

A contract is an agreement between two or more parties to do stuff. If at least one party agrees with at least one other party to do something, and at least one of them mean it, then they have a contract. Simple, huh?

A contract involves people

A contract involves more than one party. You can’t have a legally binding contract with yourself – even if you really, really want to. So, that “contract” you wrote out and signed, promising yourself to go to the gym every day, is not a binding contract. What a relief, eh? It’s just a pity that the two year gym membership IS a binding contract.

Folks that are not party to a specific contract cannot be expected to honour that contract – even if you really, really wish they could. A contract is only binding on the parties that entered into the contract. (Unless the person who entered into the contract had the right to, and did, commit someone else to the contract.)

A contract involves knowledge

A contract can only exist if all the parties know about it, or knew about it at some time after the agreement, or could reasonably be expected to have known about it.

You cannot have a binding contract with someone if the other party(s) knows nothing about it. But then, you also cannot claim that the contract does not exist, just because you forgot about it.

Everyone has to know exactly what is expected of them in terms of the agreement, or be able to find that out somehow, otherwise they cannot honour the contract, now can they? So, it is important to discuss the terms of the agreement or reduce the terms and conditions to writing.

A contract involves agreement

Unless the parties can agree on what they are willing to commit to, they can’t have a contract. Agreement is essential to a contract. That is why the terms of a contract is important. If you don’t know what you’re agreeing to, you can’t really agree. And agreeing to agree at some future date just isn’t good enough for a contract to come into existence.

A contract does not necessarily have to be written down somewhere, even if it is generally accepted that a contract is a piece of paper. An oral agreement is a contract too – even if you really, really wish it wasn’t.

An oral agreement can always be reduced to writing. And once the parties to the oral agreement sign a written one that contains terms and conditions similar to the oral agreement, the written contract will replace the oral contract and become the binding agreement. This is why it is so important to get EVERYTHING down in writing once you do.

If some aspect of an oral agreement is not included in the written contract, one party will not be able to the hold the other party(s) to that missing term or condition. Er, unless that term or condition is an accepted common law principal, of course.

A contract involves intention, commitment and expectation

A contract cannot exist if the parties to a contract did not intend to enter into an agreement. But once the agreement is reached and the parties commit to it, it is like a promise to do the things each one had agreed to do. Each person knows what is expected of him/her, and each party has the right to expect the other party(s) to stick to the deal.

An agreement between parties is binding on those parties if any of them had a reasonable expectation that the other party(s) meant to enter into a contract. The parties are bound to do what they contracted to do, even if one of the parties later tells the other party(s) that they were only joking.

Remember that old saying, “Let your word be your bond“? Well, a contract means you have to keep to your word. So, try to always say what you mean and mean what you say – especially if you’re going to say something in writing.

A contract involves value

A contract has a value of it’s own. The value lies in the right to expect something from someone. And usually the expected thing has value of some kind. I mean, if it didn’t have value, then why bother, right?

The value attaching to a contract does not necessarily have to be monetary, but a contract always involves something that someone will do, have done or is doing in consideration for something that someone else will do, have done or is doing.

A contract must be lawful

Technically, a contract for something unlawful is still a contract, but neither party can be held legally liable if they don’t stick to the deal. Although, I guess you could use another unlawful action to force the other person to “honour” the “contract”.

So, although paying some dude to kill a guy is generally known as “taking out a contract” on that person, it really isn’t a contract in the legal sense of the word.

My contract definition

And that, in short, is what a contract is. Yes, short. There is more to say about contracts, but I’m not gonna say it, because you’re not gonna read it, are you?