What is a contract? Basics corporate legal teams should know first
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When we take contract review questions, business teams sometimes get stuck before reaching the individual clauses: is this actually a contract, does an email or a purchase order have legal effect on its own, is a contract void without a seal. These may look like basic questions to a legal team, but from a business team's perspective, contracts arise naturally out of everyday dealing and do not always take the form of a signed document. A SaaS sign-up, a delivery date agreed over chat, clicking through terms of use are all entry points into a contract. This article works through the basics worth having settled before reviewing any contract in practice.
A contract is a promise with legal effect
A contract, put simply, is a promise between parties that creates legal effect. Under Japan's Civil Code, a contract is formed when a party who has made an offer stating its content receives the other party's acceptance, and, except where a statute specifically requires otherwise, no particular form such as a written document is required for formation. In other words, a contract can exist without a written contract at all, as long as there was an offer, an acceptance and identifiable terms. A verbal agreement, an email exchange or a web form submission can all count. Even so, "does a contract exist" is not the only question that matters in corporate practice. What matters day to day is whether the company can later explain who agreed to what, for how much, and by when. A written contract does more than form the agreement. It also serves as evidence of the terms and a way to keep internal and external understanding aligned.
Deals without a written contract are harder to prove later
Learning that a contract can form without paperwork can make a written contract seem optional. In practice it is the opposite: a deal without a contract is the one that becomes hardest to explain once something goes wrong. Scope of work, whether payment is for a deliverable or for time spent, inspection standards, when extra fees kick in, renewal and termination terms, liability caps, how confidential or personal information may be used, who owns the IP: none of this tends to matter while things are going smoothly, and all of it becomes urgent the moment a delivery slips or information leaks. Reviewing a contract is not really about polishing wording. It is about finding the points likely to cause disputes before the deal starts, and getting both sides' understanding to match.
Contract formation and internal approval are different things
A common point of confusion in corporate legal work is treating contract formation and internal approval as the same thing. A contract can be found to have formed externally even before an internal approval, seal request or board resolution is complete. Conversely, a signed and sealed contract that skipped a required internal approval is an internal governance failure that will surface later in an audit or accountability review. It helps to separate these questions explicitly: has the contract formed against the counterparty, is there evidence of its terms, has the required internal approval actually been obtained, does the signer have proper authority, and can all of this be explained later in an audit, a due diligence review, accounting or debt collection. Reviewing a contract should include this surrounding process, not just the text. Fast-growing companies in particular sometimes let internal approval drift out of step with signing in the rush to close deals quickly.
The contract type determines what to check
Different contract types call for different focus. A service agreement centers on deliverables, inspection, subcontracting, IP and liability. SaaS terms of use tend to turn on the enforceability of standardized terms, service suspension, data use and how the terms can be changed. An investment agreement raises questions about the share terms, representations and warranties, preemptive rights, and consistency with the shareholders' agreement. Identifying the contract type is the first step in any review, since it sets the priority order for which clauses actually matter.
A recurring misunderstanding is that no contract exists without a signed document, when in fact an offer and acceptance with identifiable terms can be enough. Another is that a contract without a seal is meaningless, when a seal is strong evidence but not the only way to show a contract was actually agreed. A third is that using a template is inherently safe, when a template is only a starting point and still needs to be checked against the actual deal, amount and counterparty.
LegalAgent's legal outsourcing supports everything from day-to-day contract review to building judgment standards by contract type.