Contract Law Formalities: Understanding The Essentials

Formalities in contract law refer to the requirements that must be met for a contract to be valid and enforceable. While contracts can be formed without any formality, certain transactions require formality, such as putting the contract in writing, making a deed, or registering it with a government body. These formalities are important to prevent issues in the event of a disagreement between the parties and to ensure that all parties understand their obligations and the consequences of the contract. Formalities may also serve as evidence of the transaction and protect consumers by ensuring they receive copies of the contract and its terms. While the requirements of formality have generally decreased with technological advancements, certain contracts, such as those for the sale of land or those that cannot be performed within a year, still require formalities as prescribed by statutes like the Statute of Frauds.

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Written contracts

The process of creating a written contract typically involves making an offer, receiving acceptance, and finalising the agreement. While written contracts are important, they are not always essential. In some cases, a simple memorandum or note of the agreement may be sufficient. This could be as informal as a diary note or letter, as long as it contains all the material terms, such as identity, subject matter, and consideration.

Overall, written contracts are a crucial aspect of contract law as they provide a clear and enforceable record of an agreement between parties. They help to prevent disputes, clarify obligations, and define the rights of those involved.

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Deeds

A deed is a formal legal document that confirms an agreement between parties and creates or confirms an interest, right, or property, or a binding obligation. Deeds are similar to contracts, but there are some key differences. Firstly, deeds have to be written, while contracts can be verbal or written. Secondly, contracts require 'consideration' (i.e., something is given in return), whereas deeds do not. Thirdly, deeds must state the intention to be a deed. Fourthly, deeds have a statutory limitation period of 12 years, compared to six years for a simple contract. Finally, deeds involve more formalities when being drawn up, such as requiring witnesses to observe their formation.

The execution methods for deeds have evolved over time. Originally, deeds were only effective under a seal, but now there are four principal methods of execution:

• Signature by a Director and the Company Secretary or by two Directors
• Affixing the company's common seal in the presence of a Director and the Company Secretary or two Directors or other duly authorized officers
• Signature by a single Director in the presence of a witness who attests the signature
• Where the employer or contractor is an individual, signature in the presence of a witness

It is important to use the correct execution method, as ineffective execution will result in the loss of the deed's validity and enforceability, and the 12-year limitation period will no longer apply.

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Registration

In India, the Indian Contract Act, 1872, states that while a contract can be oral or written, a written agreement that has been registered if required by law is considered more valid. Similarly, in the United States, certain contracts, such as those covered by the Statute of Frauds, must be put in writing and executed with particular formalities to be enforceable.

The registration process for business contracts in India involves several steps, including drafting the Memorandum of Association (MoA) and Articles of Association (AoA) with the help of a corporate lawyer, obtaining the Director Identification Number (DIN) from the Central Government, and gathering and submitting all the required documents, such as identification and address proofs, contract-related affidavits, and proof of the principal place of business.

Overall, while registration is not always mandatory for a contract to be valid, it is advisable to register any contract to avoid potential disputes, vagueness, and unnecessary litigation costs that may arise in the future.

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Consumer contracts

In Victoria, Australia, the Instruments Act 1958 (Vic) s 126 provides that:

> An action must not be brought to charge a person... upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.

This requirement can be satisfied electronically. It is not necessary for both parties to sign the contract, only the party against whom action is being brought. It is sufficient for there to be a memorandum or note of the agreement, which might be a diary note or letter, for example, and this document must contain all the material terms (e.g. identity, subject matter, consideration). It is possible for more than one note or memorandum to be joined together, so long as the documents refer to each other.

In Tasmania and Western Australia, there is a requirement for contracts for the sale of goods above a certain value to be evidenced by a written note or memorandum signed by the party to be bound.

In English law, formality is typically required for large engagements, including a consumer credit agreement. A contract for guarantee must also, at some stage, be evidenced in writing.

In the US, statutory law, such as the Statute of Fraud, may require some kinds of contracts to be put in writing and executed with particular formalities, for the contract to be enforceable. However, the parties may enter into a binding agreement without signing a formal written document.

Contract amendments

In contract law, formalities are typically required for large engagements. This includes the sale of land, a lease of property over three years, a consumer credit agreement, and a bill of exchange. A contract for guarantee must also be evidenced in writing at some stage.

To amend a contract, all original parties must review, agree to, and sign the amendment. It is important to note that one party cannot unilaterally change the terms of a contract without the agreement of the other parties. Amendments should be proposed to the other parties, and it is recommended to ensure that they are fair, justified, and realistic to increase the chances of receiving support.

While the specific process for amending a contract may vary depending on the stage of the contract lifecycle and the tools used, it is generally recommended to put amendments in writing to avoid potential issues. This is especially important if the contract or the law requires written amendments. In some cases, state laws or the Uniform Commercial Code (UCC) may mandate that certain types of contracts, such as those involving the sale of goods over a specific amount, be in writing to be enforceable.

It is also crucial to distinguish between an amendment and an addendum. While both can alter the terms of an agreement, an amendment changes the original terms, while an addendum adds new terms while keeping the original contract intact. An appendix, on the other hand, provides additional information without changing the contract's terms.

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