Contract law is no piece of cake. From interpretation to wording and even consideration problems can all end up in court. Believe it or not, a common court case in contract law is a litigation deciding whether or not a contract even existed. Though such court cases may seem silly, they are extremely common, for good reason. When looking at the situation from afar, it makes sense.

What you have to realize is that contracts do not have to be in writing so not every contract someone makes is a physical formal agreement. Sometimes verbal agreements are the basis of a contract. In fact, before a legal contract can exist, there has to be a "meeting of the minds." And while this too may seem strange, consider the following situation. You're out with friends conversing and the topic turns to businesses and one of your friends brings up a novel business idea.

Throughout the conversation everyone chips in their own thoughts and ideas, including yourself and you are using words like "in theory" and "maybe" which are then eluded to be more than just idle talk. Because of your wording, your friend later on sends you a draft contract and wants to explain your responsibilities and salary. To your friend, idle chit chat was much more. With this situation in mind, is there technically, and legally, a contract in existence? From your own perspective, there's no contract at all as business talks were merely talks to pass time and to enjoy each other's company.

However, on the other hand, your friend sees things much different and feels a meeting of the minds, which then pushed him to jump the gun and take time to draft a contract. In his mind you now have certain responsibilities and are bound to them. If this situation was taken to court, the judge would first have to apply the Objective Standard to the contract that your friend drafted. The Objective Standard is a legal concept that takes a step back and analyzes the situation from the point of view of an educated bystander, after all the facts and nuances of the case are out on the table.

Basically the standard adds in an unconnected third party to observe the facts and come to a reasonable solution. The answer to this standard will determine whether or not you are legally in a binding contract, or not. Since situations like the fore-mentioned are becoming more and more common, the key to avoiding them is to be clear and concise. In the event that you're talking to a friend, coworker, or acquaintance about a business deal or idea, be up front about your intentions. If it is mere idle conversation, express that. If you are pushing for a business start-up, mention that as well.