Myth or fact?
- Myth
- Fact
A contract is a legally recognized agreement made between two or more people. In most cases, a contract doesn’t have to be in writing. But even when the law doesn’t require a written document, it is a good idea to put a contract in writing.
What you should know
Some kinds of contracts must be in writing. One example of this is if you are buying or selling real property.
Even when the law doesn’t say that you have to have a written contract, you should have one if you are exchanging something that is worth a substantial amount of money. For example, a written contract is a good idea if you are:
buying or selling a car
hiring someone to do home improvements
buying or selling an electronic device
offering your services to an employer
If a problem arises, you can go back to the written contract rather than argue over “who said what” when the agreement was reached.
Contracts have three essential elements:
Agreement. The people making the contract (called “the parties”) must agree or have a “meeting of the minds” on what has been agreed to in the contract. The agreement is formed by one party making an offer to contract with the other on certain terms and the other party freely indicating their acceptance of those terms.
Consideration. There must be an exchange of something of value to each party. Most often, one person pays money to another in exchange for a good or service. But money doesn’t have to be involved. Services could be exchanged — for example, you offer to fix your hairdresser’s car in exchange for a haircut. Whatever is to be paid or done is called consideration.
Intention. For an agreement to be legally enforceable as a contract, both parties must intend to be legally bound by their promise.
A contract will not be legally valid unless everyone involved has the mental capacity to enter into the contract. Mental capacity means that you have to understand what is in the contract. It also means that you understand what effect the contract will have on you.
You cannot enter into a contract if your mental state prevented you from understanding the result of your actions. For example, if you were completely drunk, under the influence of drugs, or suffering from severe depression, you could ask that any contract you agreed to while you were in that state be cancelled.
A contract is not legally valid if you sign it under duress or coercion. For example, if someone threatens you with physical harm unless you agree to sell your car to them, this is not a valid contract. You did not enter the agreement voluntarily.
Make sure you're dealing with someone in an authoritative position
You should only form a contract with someone who has the authority to carry out the contract. For example, if you are contracting with a business, you should make sure to deal with the business owner or CEO.
The terms of the contract must be specific in order for it to be legal. You could not write a contract with these terms:
Yvonne agrees to do something for Susan, to be determined later, in exchange for Susan’s payment of whatever money she has at that point.
These terms are unclear; there is no certainty about what will be done, when it will be done, or what will be given in return. This contract is unenforceable, even if both parties agree to it.
Write the contract in six steps
You can use our template for a basic contract to get you started. Before using the template, be sure to read the steps below on how to write a contract.
Write the name of the contract at the top of the page. Follow with the names or company names of all parties, in this format:
This agreement is between ____ and ____.
Contracts involving a business should include the business’ full legal name, including descriptions such as “Ltd.” or “Inc.”
If there is any other identifying information you want to include, such as a person’s address or title, include it here.
If one of the parties is an incorporated entity
If a party to a written contract is an incorporated entity, like a company, the company’s name must be written correctly in the contract:
at the top where the parties are named,
throughout the contract where the things each party is agreeing to do are described, and
at the end where the parties sign.
For example, if you have a company for your website design work, it is your company and not you personally that would enter into contracts to design websites.
Write the contract in plain language
The contract should be written in clear, plain language that is easy for everyone who will sign the contract to understand. This will help everyone know what they are agreeing to.
Describe what things of value are being exchanged. Write clearly what one party is promising to deliver and what the other agrees to pay or do in exchange.
If services are part of the deal, state:
what services will be performed
who will perform the services, for whom, where, when, and for how long
what will the person get for performing the services
For example, you could write:
Catherine Thomas agrees to copy edit a 250-page manuscript for Jones Publishing by July 15, 2017 for a flat rate of $2,500.
If goods are involved in the exchange, state the make, model, size, colour, and any other identifying details of the goods. Also write in the delivery date.
If money is exchanged, specify the method of payment, and whether payment will be made in one lump sum or in multiple installments.
If you are buying or selling land, provide a legal description of the property and its exact location.
Contracts involving real estate must be in writing
Contracts involving real estate must be in writing in British Columbia. A lawyer or notary public can help you by searching the title to the real estate, preparing and reviewing purchase documents, and ensuring that the legal transfer is registered in the land title office.
Describe how the contract will be ended. For example, if the contract is for a one-time exchange of services, state that the contract will end once the services have been delivered. If it’s a contract for ongoing services, you may want to say in the contract that either party may end the contract by giving 30 days’ notice.
Include information in the contract about what will happen if someone doesn’t do what they say they are going to do. For example:
If Catherine Thomas does not complete the services of copy editing a 250-page manuscript for Jones Publishing by July 15, 2017, this contract is no longer valid.
(A legal term sometimes used to describe when a contract is no longer valid is “null and void.”)
Be aware that a minor breach of contract may not make the whole contract invalid. For example, if Catherine Thomas was contracted to copy edit a 250-page manuscript for Jones Publishing by July 15, 2017, but only completed 175 pages, this would likely be considered a minor breach. Because Catherine completed a substantial amount of the work and appeared to have made a good faith effort to fulfill the contract, it is unlikely that Jones Publishing could completely cancel the contract. However, they probably could be eligible for some sort of remedy, such as paying a lower rate.
Some laws are provincial and some are federal. Make clear what laws you have in mind when you write the contract. If you do that, should a dispute arise, a court or other decision-maker would know what law you intended to apply to your contract.
For example:
The laws of British Columbia and the laws of Canada applicable in that province govern this agreement.
Write down specific ways that you will resolve any dispute. Consider adding a mediation or arbitration clause. These are ways to resolve disputes that are less expensive and time-consuming than a court action (also known as litigation).
For example, a mediation clause might read:
If a dispute arises out of or relates to this agreement, and the dispute cannot be resolved by negotiations between the parties, the parties agree first to try in good faith to resolve the dispute by mediation before resorting to arbitration, litigation or some other dispute resolution procedure.
If a dispute has to go to court, state where that will be:
The parties agree that the courts of British Columbia will have exclusive jurisdiction to hear and decide any litigation which may arise out of or relates to this agreement.
Provide spaces on the last page of the contract for each party to sign the contract, and for the date the contract is signed.
Signing the contract
When you and the other party are both in agreement about the content of the contract, sign and date it. Have the other party do so as well. You don’t have to be together to sign the contract. See more on signing a contract.
Who can help
Consumer Protection BC
