What’s the definition of a contract? A contract is a legally enforceable agreement in which two or more people or organisations commit to certain obligations in return for certain rights. In a business context this can range from contracts for the sale and purchase of products and serv-ices based on a purchase order, to contracts for the sale of a multinational business. Some contracts may consist of no more than a single page, an exchange of faxes, or even an oral agreement. Others will run to hundreds of pages, depending on the complexity of the transaction. Most contracts consist of a variety of mutual and complementary rights and obligations. The words contract and agreement have the same meaning and tend to be used interchangeably. What do you need to create a contract? There are up to four elements needed to create a valid contract. There needs to be an intention to create a contract. But this intent is inferred by what was done and said. However this factor can largely be discounted with business agreements, as the law tends to presume that people in a business relationship intended to create a contract. If there is a dispute and you take the position that you didn’t have a contract, you would have to prove that you had no intention to create a contract. Also, when you enter into a contract you need to be lawfully capable of agreeing to contracts, (sometimes called capacity to contract). For practical business purposes this means that if someone who has no authority signs a contract there is a danger that the contract could be invalid. Thirdly, in some countries there needs to be consideration. That is, some price or value needs to be exchanged for there to be a valid con-tract. Again, in a business context, it is unlikely that the parties would want to start a commercial relationship without there being a prospect of mutual benefit. The most essential requirement for a business contract. The fourth and most important element required for a valid contract so far as business agreements are concerned, is the necessity that agreement has been reached on all the essential conditions of the contract. For example, if I agree to sell and you agree to buy, but we don’t agree a price, it is unlikely that there will be a contract. Remember however that the laws of many countries don’t like being asked to unwind a commercial transaction and in some circumstances the law may step in, for example by implying a price for the goods or services based on a previous course of dealings where the contract doesn’t mention a price. Can legally binding agreements be created using fax or e-mail? Another common question on signing formalities relates to the validity of contracts created by way of exchange of fax. With the exception of certain types of contacts which have to be in a certain form, business agreements are usually valid as long as the essential elements for creating a contract are met. So an exchange of faxes, E-mail or an oral agreement will normally be valid provided there is agreement on the essential conditions, and intention and authority to create a contract. Courts are reluctant to cancel an agreement between two commercial parties. You should remember however that there could be difficulties in proving the terms of the agreement, particularly one that is based on oral discussions. So where a contract is of any significance it is wise to back up oral agreements and electronic exchanges with a formal agreement or letter.