This article provides a brief introduction to the law of contracts including the vital elements to contract formation and the problems of dispute resolution.
At its most basic level a contract is an agreement between two parties whereby one makes an offer that is accepted by the other and there is some mutual exchange of value. In legal terms the mutual exchange of value is called the consideration each party receives under the contract. Offer, acceptance and consideration are the three fundamental aspects of all common law contracts.
Types of Contracts
Contracts can be oral, written, or implied by the parties’ actions. A written document which purports to be a contract is in fact merely evidence of the details of the fundamentals noted above. It is not the contract itself. For obvious reasons, it has become the practice in most situations to spell out all the details that the parties have agreed to in writing. This ensures that everyone can see in black and white exactly what they are agreeing to and make any changes that they want made clear to the other party.
Similarly, signing a written document is not necessarily the act of acceptance which creates the contract. If the parties have already reached an agreement the written document and signatures may be treated by the courts as documentary evidence of an already existing agreement. Again, the practice has arisen that acceptance is effected upon the signing of the written document as this act provides clear evidence of the terms that the parties clearly agreed to at the relevant time.
It is worth noting however that in most common law jurisdictions governments have added to the requirements for a contract in certain situations. For example, contracts governing land are typically required to be in writing. It is therefore important to check your local state, provincial, or federal laws as they may be to determine if there are particular requirements for the agreement you are considering.
Location of the Contract
In the digital age, agreements can be made practically instantaneously between differing jurisdictions over the internet. It is therefore important for anyone entering into contracts over the internet to pay close attention to what laws govern a particular situation. This would include all purchases made online as well as any other situation where an offer is made and accepted for consideration. Contractual obligations may arise and could be litigated in situations where people feel that they are insulated due to the fact that their interactions are online.
There has also been a growing movement in contractual disputes away from the formal legal systems towards independent mediation and arbitration hearings. Terms obligating the parties to attend mediation or arbitration prior to bringing formal legal proceedings are now common in many commercial contracts. These alternative dispute mechanisms allow the parties to better control the issues under dispute and the possible outcomes. However, to the extent that these proceedings exclude the jurisdiction of the courts in hearing contractual disputes there is a loss to the legal system as a whole of the precedents which otherwise would have been established by the courts.
Finally, it is worth noting that the contractual theory provided above is applicable in common law jurisdictions which include most of the English speaking world and the Commonwealth countries. However, in other legal systems such as those governed by some form of civil code, religious doctrine, or other code, differing interpretations of when an agreement between parties becomes legally binding and what constitutes a contract will apply. It is therefore imperative that before you enter into an agreement you consult with a lawyer familiar with contract law in the relevant jurisdiction.
