Contracting 101: Write it Down
By ZARAH WALPOLE
A contract is an agreement between two or more people or entities to exchange something of value. You enter into a contract with someone whenever you agree to provide or acquire products, money or services in exchange for products, money or services. A mortgage, a purchase order, a ski pass, a lease, renting a video, buying a plane ticket and using credit cards are all contracts.
Most contracts do not have to be in writing to be enforceable; but writing down the details of any agreement is always a good idea. Putting the terms of the contract into writing helps you to be clear on what the details are, and to avoid misunderstandings later on. Just going through the process of “writing it down” forces you to think more clearly and to confirm issues that you might otherwise have overlooked. Both parties benefit from ensuring clarity and certainty. (You want to avoid the "I didn't say that" argument.) A written contract also provides better, more reliable evidence of the parties’ intentions if a dispute does arise.
A written contract is particularly important when you are entering into a long-term business relationship with another person, such as a joint venture or partnership, or when hiring an employee or independent contractor. Oral arrangements can get pretty fuzzy over time, as can people's memories. A written contract is also a handy tool when buying or selling goods or services. You can confirm the exact description of a product, the exact price, etc. If you are lending or borrowing money or buying or selling a business, even (or especially) to family members, a written contract is essential.
Sometimes a contract must be in writing to be enforceable. For example contracts for the sale of land and guarantees of someone else’s performance or payment must be in writing.
The Ontario Consumer Protection Act says that “executory contracts” must be in writing or they will not be enforceable against the buyer. An executory contract is a contract between a buyer and a seller of goods or services where: (i) delivery of the goods; (ii) performance of the services; or (iii) payment in full of the purchase price is not made at the time the contract is entered into. For example, in May you agree to paint a client’s house in August. If you don’t get her agreement in writing you may find that come August the house owner has changed her mind and there is nothing you can do about it, even if you already bought the paint.
Although a verbal contract can certainly be legal, if you are dealing with important business relationships a written contract is smart.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
