of legal significance. It is important to you and your business that your words clearly and accurately communicate your intentions.
• Communications with government: Every business, regardless of size, will have extensive dealings with governmental authorities and agencies. From simple government filings to complicated administrative proceedings, it is important for you to know how to communicate with government in a way that protects your business interests. As anyone who has had to navigate the murky waters of bureaucracy knows, one wrong word can cost you significant time and money.
• Judicial proceedings: At some point, almost every business finds itself dealing in one way or another with our court system or other judicial or administrative body. You may sue; you may be sued. You may simply be asked to serve as a witness in connection with a legal proceeding unrelated to you. The point is, the judge is interested in what you have to say, and what you have to say (or what you may have already said) must often appear in written form.
No one will ever win a literary award for writing a great contract, and no contract will ever be mistaken for a great book. However, a great contract can definitely contribute to the success of your business. That, ultimately, may one day be worth writing a book about.
A final note of caution: This book is not intended to serve as a substitute for sound legal advice, particularly with respect to substantive issues of law. It is a book about learning to write contracts and not the law per se. You should consult with a qualified lawyer regarding any legal matter that may arise in connection with you or your business. It should also be noted that the views expressed in this book are for assistance purposes only and should not be taken as binding on any court, governmental authority, or other administrative organization. As such, the contents of this book are intended for informational purposes only and do not purport to be a complete statement of the law or any aspect of it.
Part I
UNDERSTANDING CONTRACTS
1
What Is a Contract?
Contracts have been with us since the dawn of commerce. From the Silk Road to Wall Street; from the spice trade to the stock trade; from the Hudson’s Bay Company to eBay; contracts are the universally accepted way of doing business. Yet who can say with any certainty what a contract is? Or what a contract does? Or what a contract even looks like?
The law can. Therefore, we begin our journey of learning how to write our own business contracts by looking at what the law says a contract is.
1. The Origin of the Word Contract
The word contract traces its roots in the English language to the 14th century. It is derived from a Latin word meaning “to draw together.” That may seem like a trivial point to make, but we must bear in mind that part of our goal is to take the mystery out of writing contracts. By considering the idea that gave birth to the use of the word, we can appeal to our shared understanding of what it means to draw together and use that as the basis for further investigation.
Where persons are involved, to draw together implies — indeed, requires — two or more people. One person alone cannot be drawn together, so the original users of the term contract had in mind a joint effort. They also had in mind a particular action: that of drawing. Contracting isn’t something that happens passively, by coincidence, chance, or fate. It must be actively pursued by the persons involved.
We now know that the original idea behind contracting was that of persons jointly taking active steps to bring themselves together in some respect. This is something we can all clearly grasp, intellectually. We can simply think of instances in our lives where we have taken steps to bring ourselves together with another person, perhaps by buying him or her a birthday present or agreeing to help someone move house. The possibilities are endless, of course. We fill our days with countless examples in which we bring ourselves together with others regarding some matter or another.
Are all of these instances of what the law recognizes as a contract? Before we answer that question, let us return to the notion of drawing together one more time in order to highlight another aspect of contracting.
Note how the original use of the term contract does not say or even imply anything about the way persons must draw themselves together. Specifically, note how the original use of the term contract doesn’t require anything to be necessarily written down. To put it another way, the origin of the term contract is not to draw together in writing. Nor is it to draw together on a piece of paper that has been dated and signed. This is an important point to make because a popular misconception is that a contract must be in writing to be considered a contract.
As you will learn, the law (with very few exceptions relating to interests in real estate, a topic that is beyond the scope of this book) does not require contracts to be in writing. The dated and signed piece of paper you hold in your hands is only evidence of a contract and not the contract itself, just as smoke is evidence of a fire but is not the fire itself. Still, it is the best evidence available and this is a reason why it is important to you, as a businessperson, to learn how to write contracts.
We have begun to demystify the meaning of contract by returning to the idea that gave birth to its use. We now understand that contracting means persons jointly taking active steps to bring themselves together in some respect, which does not have to be in writing (but, for our purposes, should be in writing to better ensure certainty about what is being contracted).
2. The Three Components of a Contract
Over the centuries the law has refined our understanding of contracts and distilled it down to three components that, together, define what a modern contract is at law. They are offer, acceptance, and consideration.
2.1 Offer
We said that contracting requires something being actively pursued and not simply arising as a matter of coincidence, chance, or fate. Where the law is concerned, the fulfilment of that requirement begins with an offer. An offer is the starting point of every contract that the law will recognize as a contract.
To offer means to present something for rejection or acceptance. For example, if you call your sister offering to buy her piano, you’ve fulfilled the first requirement of a contract. You have presented something to her — in this case, an offer to buy her piano — which she can either accept or reject.
The varieties of offers you can make, and the form in which you can make them, are virtually limitless. You can offer to sell some of your wares and communicate that in an email. You can go door-to-door in your neighbourhood and verbally offer to clean homeowners’ chimneys. You can write out an offer to purchase someone’s farm and deliver it through an intermediary (e.g., a real estate broker). In each case, you have taken the first step toward forming a contract.
It is not important whether an offer is made verbally, in writing, or otherwise. As long as the person making the offer (offeror) communicates the offer to the person to whom the offer is being made (offeree), the offer is valid for the purposes of creating a contract.
An
