It is known that a legal agreement signed by both parties is binding, but what about an agreement that was done via email or on the phone, by text message or a handshake?
Knowing whether you have a valid contract is not always as easy as it may seem.
'Let's shake on it’, when used in a business scenario can spell disaster for all involved, according to Katherine Timoney, senior associate at commercial law firm Gillan & Veldhuizen Inc.
“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,“ Timoney said.
While a handshake goes a long way to establishing commitment to a business deal or transaction, for the deal to be legally binding, a person needs to witness the agreement taking place and some form of written follow-up needs to be drawn up to confirm the details that were agreed upon.
Timoney said: “A contract is an agreement between two or more parties that creates a legal relationship that is capable of being enforced in law.”
This is a very broad definition which might be difficult to know what makes an enforceable contract.
According to Timoney, judges and other legal thinkers can distil a valid and enforceable contract into six, essential elements. These include:
– Consensus – the parties must agree
– Contractual capacity – the parties must be capable of entering into a contract, for example, are the parties old enough
– Legality – the contract must include legal, above-board subject matter. For example, 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. An example, 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
– 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.
Timoney said that once these six elements are present, each kind of contract will have 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,” said Charles De Meillon, a candidate attorney at the firm.
For example, contracts to purchase immovable property like a house, flat or other real estate have to be in writing. This means that they have to be physically signed on paper and cannot be signed electronically.
Many contracts may also contain a provision that cannot be changed or the terms varied except if that change is done in writing and is 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 with verbal contracts, it is recommended that one party summarises key terms and conditions in a final email and ask the other party to confirm their agreement.
While ‘awesome’ or a ‘thumbs up emoji’ may imply acceptance, ‘yes’ or ‘I agree’ is much clearer. This can help you be certain that the person agreeing is in fact the person you are doing the contract with.
It is advisable that you 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.
IOL Business