When a handshake just won’t cut it.
Knowing whether you have a valid contract is not always as simple as it seems. We all know that a legal agreement signed by both parties is binding, but what about an agreement you made by email, phone, text message or a hand shake?
“’Let’s shake on it’, when used in a business scenario can spell disaster for all involved. It can be an extremely expensive and time-consuming process to prove the content of such an agreement as both sides would have to give evidence to the court of what they understood the terms of the contract to be,” cautions Katherine Timoney, senior associate at commercial law firm Gillan & Veldhuizen Inc..
While a handshake goes a long way to establishing a mutual trust towards a long-standing relationship and shows commitment to a business deal or transaction; for it to be legally binding, someone needs to witness the agreement taking place and some form of written follow up needs to be drawn up confirming the details agreed upon.
“A contract is an agreement between two or more parties that creates a legal relationship that is capable of being enforced in law,” says Timoney. This is a very broad definition so it might be difficult to know what makes an enforceable contract, but, luckily, judges and other legal thinkers can distil a valid and enforceable contract into six, essential elements, namely:
- Consensus – the parties must agree;
- Contractual capacity – the parties must be capable of entering into a contract e.g. old enough to do so;
- Legality – the contract must include legal, above-board subject matter e.g. you can’t go to courts to enforce a contract with a drug dealer selling illegal substances;
- Offer and acceptance – these two halves make a whole contract e.g. a car dealer offers to sell you a new car, you accept by paying the purchase price;
- Possibility of fulfilment – it must be possible for the parties to deliver on what they are agreeing upon; and
- A degree of certainty – while there can be some unknowns in the contract, there must be a certain level of certainty for a contract to be valid and enforceable.
Once these six elements are present, each kind of contract has its own specific requirements and necessary terms which affect how a contract must be drafted or what makes it valid.
“There are also specific rules as to how contracts can be signed, which may affect its validity and need to be looked out for,” advises Charles De Meillon, a candidate attorney at the firm. For example, contracts to purchase immovable property (a house, flat or other real estate) have to be in writing, which currently means that they have to be physically signed on paper and cannot be signed electronically.
Many contracts may also contain a provision that they cannot be changed or the terms varied except if that change is reduced to writing and signed by both parties. However the courts have held in certain instances that emails where parties have agreed to change the contract between them, such as terminating a lease agreement early, which were sent via email and contained the parties’ email signatures were valid variations to, or terminations of, the contract.
Email contracts however, also give room for forgotten terms, mistakes and inaccuracies – and, like verbal contracts, it is recommended that you summarise key terms and conditions in a final email and ask the other party to confirm that they agree.
While “Awesome!” or a “*thumbs up emoji*” may imply acceptance, “yes” or “I agree” is much clearer – and be certain that the person agreeing is in fact the person with whom you are contracting!
It is advisable to have a professionally-drafted, written contract, tailor-made to a specific transaction so that both parties are clear on the terms of the contract which will then make it simpler and easier to enforce rights arising from the contract.