A contract is a legal agreement made between two or more parties. There is a common saying that all contracts are agreement but not all agreements are contract. A contract contains certain specific elements that makes it legal. This means that the parties to the contract have either expressly or impliedly agreed to abide by those elements and there will be legal consequences for not following these agreement.
There are many ways to form a contract in business. Many people believe that a contract has to be in writing. This is not entirely true and in fact more than 90% of the contract that you make in your life are done verbally. To put it across simply a contract can be made in writing or it could be made orally or it could be a combination of both written and oral.
Written contracts are obviously more formal and in fact these types of contract are referred to as ‘formal’ contract or specialty contract. A commonly used phrase to describe these types of contract is that it must be signed, sealed and delivered. Usually written contract is preferred especially if the parties are engaged in an expensive transaction. Like buying a car or a ship. You may want to have a written contractual agreement if you are intending to be employed so as to ensure that you are clear about what your job scope is and your rights and duties that your employer expects out of you. However you should note here that the law does not require an employment contract to be in writing. This may not be an advisable thing to do as if there is a future dispute it would become more difficult to prove the case if it ever goes to court.
There is one type of agreement that the law demands to be in writing. This is when you buy, sell or transfer land or any kind of real property. The rationale for this is that unlike all other forms of contract, land is a tangible asset that obviously must be owned by someone and it should be clear who owns it. Therefore a written contract will clarify any doubts that might arise.
Contracts made orally or partly oral and partly written are referred to as simple contracts. These kind of contract works on a basic principle referred to by the Latin phrase: ‘consensus ad idem’. That means that the parties to the contract must have a meeting of minds. Therefore if a restaurant owner were to order from his supplier for a consignment of fish over the phone, it would probably be assumed that there was meeting of minds and therefore there is a contractual relationship created.
A further classification of business contract is a contract of service and a contract for services. A contract of service is one that is made between an employer and employee. Whereas a contract for services is between a person and an independent contractor who is being engaged to perform a specific task. Like for instance you engaged a contractor to build you a swimming pool in your house. The contract that you have with this person is a contract for services. However, if you get a full time staff to maintain the pool for you, he or she is your employee and the legal relationship is based on a contract of service.