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What Makes a Contract Valid?

Will your contract hold up in court?

By
Super Admin
August 12, 2011

What Makes a Contract Valid?

Hello, and welcome to Legal Lad’s Quick and Dirty Tips for a More Lawful Life. I’m your host, Adam Freedman. 

And now, your daily dose of legalese: This podcast does not create an attorney-client relationship with any listener. In other words, although I am a lawyer, I’m not your lawyer. In fact, we barely know each other. If you need personalized legal advice, contact an attorney in your community.Today’s episode: What makes a contract valid?

Confusion Over Contracts

Looking over my correspondence, I get the feeling that some people are a little confused about contracts. Pat from Alberta writes:

I work at a hardware store, and as part of our business we rent assorted tools. My boss mentioned to me that a rental contract is not valid unless both parties are provided with a copy, and that the agreement must be signed, in pen, in blue or black ink.   Does this hold true? Can a contract’s validity hinge on the form of the contract, or the manner in which it is signed? 

Meanwhile, Lou from Florissant, MO asks me to “explain the differences between a Contract and a Letter Agreement (or other type of agreement), and when to use each.” Lou goes on to ask whether there is “any disadvantage to using plain English in a contract,” rather than traditional “legalese.”

Great questions, Pat and Lou.   The quick answer is: you guys are making this way more complicated than it needs to be -- most contracts don’t even need to be in writing, much less signed in blue ink. And, as I’ll explain, even when contracts are in writing, you can skip the legalese without making your contract any less binding.

Signed, Sealed, Delivered?

The questions posed by Pat and Lou reflect a common misconception that contracts have to be printed in a certain format or written in a highly legalistic style in order to hold up in court. Generally, that just isn’t the case.

Now, Pat is from Alberta, and I can’t claim to be an expert in the law of that Canadian province. It’s possible that in Alberta, a contract must be written on a parchment scroll, signed with a feather quill pen, and sealed with wax. But I doubt it.

Three Parts to a Contract

The basic law of contract is very similar in all common law countries – that is, countries that derive their legal system from England. And that includes all the US states (except Louisiana) and all Canadian provinces, except Quebec. Under the common law, you need three things to form a valid contract:

  • An offer by one person,

  • Acceptance by another person, and

  • A mutual exchange of value between the parties.

That can all be done by word of mouth; the law does not usually require that a contract be in writing. However, it is always a good idea – just like your Uncle Mort told you – to “get it in writing.” A written contract avoids getting into a “he said/she said” debate when the contractual relation breaks down.

When a Contract Must be Written

And sometimes the law does require contracts to be in writing. A 17th Century English law--known as the Statute of Frauds-- established certain categories of contracts that must be written down, including:

  • Contracts for the sale of real estate, or any interest in real estate;

  • Contracts in which one person promises to satisfy the debt of another person; and

  • Contracts which cannot be performed in less than one year.

The Statute of Frauds has been adopted in virtually every common law jurisdiction, usually with some local variation. In the US, for example, the Uniform Commercial Code requires that contracts for the sale of goods over $500 must be in writing. There is a proposal to increase this limit to $5,000, but it has not yet been adopted by any state.

No Magical Formula

Whether you have to put your contract in writing, or whether you just think it’s a good idea to do so, there’s no magic to the format you use. The important thing is to set forth the terms of your agreement as clearly as possible. You can put it into a lengthy document with the word “CONTRACT” at the top of page 1, or you can put it into the form of a letter that the other party countersigns. It’s up to you and your lawyer.

Expunge the Legalese!

And Lou, there’s no need to use legalese in your contract. By “legalese” I mean those annoying pseudo-precise phrases that clutter up most contracts. You don’t have to begin a contract with a bunch of paragraphs saying “whereas this” and “whereas that.” You don’t have to use terms like “null and void” or “aforesaid” or “hereinafter.” And you don’t have to use Latin, ever.

Fortunately, over the last few decades there has been a growing movement to use plain language in the law -- there are organizations in the United States, Britain, Canada, and other English-speaking countries promoting this cause. Many US states now require that consumer contracts, for example, insurance contracts, be written in “plain English.”

[[AdMiddle]In his email, Lou mentions that some people have told him that legalese is necessary for precision. Well, there are some lawyers who would like you to believe that. After all, it helps to give the law its intimidating air of mystery and don’t-try-this-at-home danger.  But with the exception of a few technical legal terms like “hearsay” (which don’t usually come up in everyday contracts) there’s nothing inherently more precise about legalese.

So next time somebody wants to make a contract with you, tell him to write it down -- in plain English, please.

You can send questions and comments to legal@quickanddirtytips.com.  Please note that doing so will not create an attorney-client relationship and will be used for the purposes of this podcast only.

Contract image from Shutterstock

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