A contract is a legal agreement made between two or more parties. There is a common saying that all contracts are agreements, but not all agreements are contracts. A contract contains certain specific elements that make it legal. This means that the parties to the contract have expressly or implicitly agreed to comply with those elements and there will be legal consequences for not following this agreement.

There are many ways to form a contract in business. Many people believe that a contract has to be in writing. This is not entirely true and in fact more than 90% of the contracts you make in your life are verbal. To put it simply, a contract can be in writing or it can be made orally or it can be a combination of written and oral.

Written contracts are obviously more formal and, in fact, this type of contract is known as a ‘formal’ contract or specialty contract. A phrase commonly used to describe this type of contract is that it must be signed, sealed and delivered. A written contract is generally preferred, especially if the parties are involved in an expensive transaction. Like buying a car or a boat. You may want to have a written contractual agreement if you intend to be employed to make sure you are clear about the scope of your job and what rights and duties your employer expects of you. However, you should note here that the law does not require that an employment contract be in writing. This may not be advisable, as if there is a future dispute, it will be more difficult to prove the case if it ever goes to court.

There is one type of agreement that the law requires to be in writing. This is when you buy, sell or transfer land or any type of real property. The reason for this is that, unlike all other forms of contract, land is a tangible asset that obviously must be owned by someone and it must be clear who owns it. Therefore, a written contract will clear up any doubts that may arise.

Contracts made orally or partially oral and partially written are called simple contracts. This type of contract is based on a basic principle referred to in the Latin phrase: ‘consensus ad idem’. That means the parties to the contract must have an agreement of minds. Thus, if a restaurant owner placed an order with his supplier for a shipment of fish over the phone, an agreement would probably be assumed and thus a contractual relationship was created.

Another classification of commercial contract is a contract of service and a contract for services. A service contract is one that is made between an employer and a worker. While a service contract is between a person and an independent contractor who is hired to perform a specific task. For example, he hired a contractor to build a swimming pool for his house. The contract you have with this person is a service contract. However, if you hire full-time staff to maintain the pool for you, he or she is your employee and the legal relationship is based on a service contract.