The word “contract” is bandied about often in today’s society. One of daytime TV’s staples is the “real-life” courtroom drama. Judge Judy is a good example. As such, with many people watching these kinds of shows, they might think they know what a contract actually is. Yet the law is rather specific. Let’s examine it.
The Canadian Encyclopedia provides us with such a precise definition of a contract: A legally-binding agreement between two or more people for a particular purpose. A contract usually involves an exchange. One person promises the delivery of a good or service in exchange for money, for example.
The basis of society
Contracts tend to form the basis of commercial activity. Without contracts, the rule of law would not apply to the most basic of societal transactions, ranging from purchases of food and other necessities to the completion of multi-million dollar mergers and acquisitions.
There is some general confusion regarding the binding nature of written versus verbal contracts. There is no stipulation that a contract must be written. A verbal agreement can be just as binding as a written one.
However, a written contract is generally easier to enforce, since its precise provisions are documented and reproducible. Such is often not the case with verbal agreements or contracts. In addition, a written contract often cannot be amended by verbal agreement.
Written versus verbal contracts
In fact, many written and signed contracts have provisions in them stating that the terms can only be changed through a similarly written and signed contract. So, for example, if someone decides to verbally change a written contract, and the other party agrees, it’s still not legally binding until another written and signed contract is made. Indeed, that’s a fundamental purpose of the law: to enforce already-made contracts that can’t be simply changed on a whim.
One example of a non-binding alteration to a contract is what’s known as puffery. In commercial transactions, for example, a seller might make many claims about a good or product that entice the buyer to purchase, such as the expected lifetime of the product, which are not in the written contract.
Yet unless such promises are specified in the signed written contract, the seller is under no obligation to guarantee the claim made during negotiation. The written provisions of a contract would be binding — nothing else would be.
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