In our daily lives, we are entering into contracts all the time – usually, and most obviously, when we are paying, or being paid, a sum of money for something. It does not have to involve handing over money, but there is usually a bargain of some sort – something given in return for something else.
Often, when non-lawyers speak of a “contract” they are referring to a written document. A contract does not necessarily have to be in writing. It can also be wholly oral, or partly oral and partly written.
When is there a binding contract?
A contract is an agreement or set of promises that the law will enforce. There are two types of contracts that the law will enforce, and it treats each in a slightly different way from the other.
- a contract under seal (otherwise known as a “formal contract”, or a “deed”), and
- a simple contract.
A contract under seal is an instrument, which is:
- written on paper, parchment or vellum;
- signed, sealed and delivered; and
- intended to operate as a deed.
For a deed to be binding, it must comply with the formal requirements laid down by statute, and the formal requirements vary slightly from State to State. Nevertheless, in every State a deed must be in writing, and be “signed, sealed and delivered”.
A simple contract, on the other hand, is any contract that is not a contract under seal. All of us enter into simple contracts with other people all the time. Contracts generally arise, for example, each time we purchase something, whether something like a house or a car, or something small, such as food, or a bus fare, or a book or some other item. We often do not even think about the legal ramifications of the more minor transactions, because they are such an everyday part of our lives.
The term “simple contract” refers to the manner of its formation, and not to the nature of its terms. In contrast to a contract under seal, a simple contract need not be in writing. It can be:
- wholly oral, or
- wholly written, or
- partly written and partly oral, or
- implied from the conduct of the parties.
The formation of a simple contract requires that three essential requirements be present:
- agreement – the parties must have concluded their negotiations and “struck a deal”;
- intention to be legally bound – the parties must intend to enter into a legal relationship, ie they must expect that promises made will be legally enforceable; and
- consideration – each party must do, or promise to do, something towards the contract, each party must do, or promise to do, something in exchange for the act or promise of the other.
If you are considering entering into a contract, or think you may need to have a contract in place – you should see your solicitor. A good solicitor can review a contract you have already entered into or create on perfectly for your circumstances. Don’t worry if you don’t have a solicitor yet, Steven Brown of Etienne Lawyers will ensure you have the right legal advice through his team – call today 1300 882 032 or email firstname.lastname@example.org for an obligation free chat to identify your contractual needs.