CHAPTER 4 Understanding Contracts The Importance of Written Contracts The law does not require all contracts to be in writing. A mutual exchange of prom- ises by business people over lunch, confirmed with a handshake and an intention to be bound, can constitute a binding contract, provided that the agreement is legal and represents a meeting of minds. A verbal agreement of this sort is every bit as binding as the most detailed of written contracts. In fact, many business contracts are never reduced to writing and are successfully completed without any problems. However, for businesses, written contracts are usually preferable to verbal contracts for two reasons: 1. Written contracts provide the parties with a record of their rights and obliga- tions. Documentary evidence of goods sold, services rendered, and business expenses incurred may be necessary from an accounting and tax perspective. 2. Written contracts provide proof of the parties' agreement in the event of a dis- pute. Should the parties take opposing positions regarding whether a contract exists at all, or should they disagree on the terms of the contract, a written contract provides excellent evidence of their intentions and mutual promises. There are a number of exceptions to the general rule that contracts need not be in writing to be legally enforceable. Contracts that must be in writing include certain contracts related to consumer transactions (see Chapter 6), most contracts related to the sale or leasing of land (see Chapter 10), and contracts that guarantee the payment of another person's debt if that person defaults on their payment obligations. Some of these exceptions also require that the contract be signed by the parties. Where a signature is a legal requirement, an electronic signature will generally be accepted in Canadian jurisdictions If a contractual dispute comes to court, the plaintiff will probably argue that the defendant breached an existing contract. The burden will be on the plaintiff to convince the judge that their version of the case has more merit than the defendant's version (see Case in Point box, below). CHAPTER 4 Understanding Contracts The Importance of Written Contracts The law does not require all contracts to be in writing. A mutual exchange of prom- ises by business people over lunch, confirmed with a handshake and an intention to be bound, can constitute a binding contract, provided that the agreement is legal and represents a meeting of minds. A verbal agreement of this sort is every bit as binding as the most detailed of written contracts. In fact, many business contracts are never reduced to writing and are successfully completed without any problems. However, for businesses, written contracts are usually preferable to verbal contracts for two reasons: 1. Written contracts provide the parties with a record of their rights and obliga- tions. Documentary evidence of goods sold, services rendered, and business expenses incurred may be necessary from an accounting and tax perspective. 2. Written contracts provide proof of the parties' agreement in the event of a dis- pute. Should the parties take opposing positions regarding whether a contract exists at all, or should they disagree on the terms of the contract, a written contract provides excellent evidence of their intentions and mutual promises. There are a number of exceptions to the general rule that contracts need not be in writing to be legally enforceable. Contracts that must be in writing include certain contracts related to consumer transactions (see Chapter 6), most contracts related to the sale or leasing of land (see Chapter 10), and contracts that guarantee the payment of another person's debt if that person defaults on their payment obligations. Some of these exceptions also require that the contract be signed by the parties. Where a signature is a legal requirement, an electronic signature will generally be accepted in Canadian jurisdictions If a contractual dispute comes to court, the plaintiff will probably argue that the defendant breached an existing contract. The burden will be on the plaintiff to convince the judge that their version of the case has more merit than the defendant's version (see Case in Point box, below)