Do you know enough about contracts?


PEOPLE may question why I write about contracts and agreements because they believe that everyone already understands these simple and basic matters. But does Joe Public really know contracts and agreements if he does not deal with them often?

Some people think a verbal agreement is not valid, insisting that a contract must be in writing to be valid. Others think it must be stamped. There is also the belief that if a contract has no witness, the document is not valid.

Such perceptions, although not entirely untrue in certain aspects, do not convey the correct legal position.

In fact, although the words “agreement” and “contract” are used interchangeably in daily life, they do not always mean the same.

The Contracts Act 1950 sets out in clear and unambiguous terms the meaning and distinction between these two words.

Section 2(e) states that “every promise and every set of promises, forming the consideration for each other, is an agreement”. In the context of common law terminology, an offer and its acceptance constitute an agreement.

Thus, an agreement comes into existence the moment two or more parties agree with each other as to what they will do or not do. That is as broad and simple as the scope of the word “agreement” is.

However, not all agreements – even those in writing – are automatically and necessarily always enforceable in law.

To be enforceable, an agreement must meet some definite positive requirement and not fall short of some negative prohibitions.

Hence, under the Contracts Act, “an agreement enforceable by law is a contract”.

An agreement not enforceable by law is said to be void. On the other hand, “an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract”.

It is wrong to believe that a contract must always be in writing. Under the law, there is no such requirement unless specifically provided.

However, if there is a dispute and it goes to court, the problem will be that the parties and their witnesses may give totally contradictory evidence.

The court will have to decide whom to believe by considering the evidence as a whole and taking into account contemporary documents.

Also, many wrongly believe that a contract is not valid because it is not stamped. It is actually valid. It is only that if the contract is not stamped, it is inadmissible if produced as evidence in court.

However, if the contract is objected to when produced, the party involved can apply to have it stamped. Of course, penalties will have to be paid. The delinquent party may face prosecution, but this rarely happens.

Is it true that a contract is invalid if not signed by a witness? This depends on the nature of the document. If it is a statutory document that the law requires a specific category of persons to attest, then its validity and acceptability will be in question.

However, if it is just a contract, then the mere fact that it is not signed by a witness does not make it invalid, so long as it is executed by both parties, or if it is accepted or signed by one party and accepted, by conduct or otherwise, by the other party.

Sometimes, a person who signed the contract as a witness may have died and you cannot call him. This does not mean the contract is invalid.

Even if the execution of a document is not witnessed, it does not mean that the document is invalid.

There are other ways of proving that it was signed by both parties and it is what they agreed to.

Collateral evidence and other contemporary documents can be relied upon.

There are documents by different names such as memorandum of understanding, letter of intent, letter of award and letter of comfort.

There have been arguments whether these are binding or not, but this is a matter to be addressed separately.

Any comments or suggestions for points of discussion can be sent to mavico7@yahoo.com. The views expressed here are entirely the writer’s own.

Bhag Singh , Law for Everyone