A contract is a transaction between two or more persons (contracting parties) with which a contracting party or contracting parties undertake to do or not to do something.
It includes terms agreed between the contracting parties outlining their rights and obligations. In addition to what is set out in the contract, the regulations governing the specific type of contract and civil law in general must be taken into account.
Contract law is based on the principle of contractual freedom, which above all means the freedom to choose what kind of contract to enter into, the terms thereof, with whom and in which form to conclude a contract. At the same time, contractual freedom may be restricted based on the law. For example, the law may establish restriction on the content of the contract where one contracting party has a weaker position than the other and hence needs stronger legal protection. This is the case in consumer protection or employment law.
Use of contracts
Everyone deals with contracts on a daily basis. Contracts are used in private law as well as public law (e.g. administrative contracts). Contracts under the law of obligations are common in private law (e.g. sales contracts, lease contracts, loan contracts, etc.). Private law contracts are also used in property law (e.g. creation, amendment, transfer of rights in rem), family law (e.g. marital property agreement between spouses), succession law (e.g. succession contract), company law (e.g. memorandum and articles of association of companies).
Entering into a contract
When you enter into a contract, you exchange mutual declarations of intent. A contract is deemed as entered into when an agreement is reached on essential terms of the contract. In legal terms, an offer and its acceptance are considered declarations of intent.
An offer is a proposal to enter into a contract. The offer must express the intent of the offeror to be legally bound by the contract entered into once the offer is accepted, and the content and essential terms of the contract must be sufficiently defined. For example, an offer may be a signed draft cable TV contract sent to the home of a certain person. If the customer signs this document (accepts it) and returns it to the cable TV company, this contract is entered into. A wish expressed to a seller to get goods from behind the store counter may be considered as an offer.
Acceptance is an affirmative response to an offer, i.e.an agreement to enter into a contract. To deem the contract as entered into, the content of the acceptance must match the offer Upon receipt of the acceptance, the contract is deemed as entered into and the parties are entiteled to demand performance. If the declaration of intent sent as a response to the offer contains significantly different terms compared to the initial one, this is no longer deemed an acceptance but rather a new offer; the other negotiating party must accept before the contract is entered into.
Different forms of contracts
A contract may be entered into in any form unless a mandatory form has been established by law. In the absence of a mandatory form, the parties may agree on the form applied, e.g. the contract is entered into in writing. The parties may also agree to enter into a contract with stricter terms than those required by law. For example, when the law requires a written record, the parties may enter into a contract in writing or by notarial deed.
If a contract needs to be entered into in a certain form, agreements on collateral and other ancillary obligations, assignment of claims or assumption of obligations must also be entered into in such form, unless otherwise stated in the law or the contract.
Written contract
With a written contract, the contracting parties must sign the contractual documents by hand, unless otherwise specified by law (for example, the law might specify that only the obligated party is required to sign the document). In certain cases, mechanical copying of a signature is permitted, if it is in common use.
The electronic form is deemed equivalent to the written one. This means that the contract contains the names of the contracting parties, and has been signed electronically by them. It must be possible to match an electronic signature to the content of the contract, the contracting parties, and the time when the contract was entered into. A digital signature is an example of an electronic signature.
Form which can be reproduced in writing
If a transaction requires form which can be reproduced in writing, it must be concluded in a way that leaves a permanent written record and contains the names of the persons who entered into the contract; it does not require a handwritten signature. An email or SMS may also fulfil the requirement of a written record.
Notarised contracts
Notarised contracts are divided into contracts certified by a notary and contracts authenticated by a notary. Notarial certification means that a contract is drawn up in writing and the signatures of the contracting parties are certified by a notary. Notarial certification of the contract may be replaced by notarial authentication of the contract. This means that in addition to checking the authenticity of the signature, the notary also checks the content of the contract and explains it to the parties. In case this is required by law a transaction has to be authenticated by a notary. Among others, the following transactions must be authenticated by a notary:
- all transactions transferring the ownership immovable property and granting rights in rem over immovable property (e.g. mortgage);
- marital property agreements;
- memorandum and articles of association or instruments of incorporation of a company;
- contracts of sale and pledge of shares in a private limited company if the shares have not been registered in the Estonian register of securities;
- agreements concerning assignment of the right of claim to unlawfully expropriated property.
Your own notarised documents can be found in the State Portal in the menu „My data“. As representative of companie or institution please use the e-service „Notarised documents“. Login with your ID-card, Mobile-ID, or Smart-ID is required.
Oral contracts
In the absence of stricter requirements, a contract may also be concluded orally. For example, if you buy bread from a shop, a sales contract is entered into between the seller and the buyer, even if the salesperson does not provide a receipt in exchange for the money paid.
The law has not established the oral form as obligatory for any transactions. The problem with oral contracts is that they are difficult to prove. Whenever possible, it is recommended to enter into contracts in writing or in any means capable of producing a written record.
The State Portal eesti.ee does not provide legal assistance, European e-Justice portal provides information on justice systems.
References
Services
Laws
- Family Law Act
- Law of Obligations Act
- An Act on the General Part of the Civil Code
- Commercial Code
- Notary Fees Act
- Law of Property Act
- Law of Succession Act