A contractual relationship arises every time you enter into a business transaction.
On this page:ContractsWhat makes a legal contract?
A contract is a promise or a set of promises between two or more people that is intended to be enforceable.
Contracts may be verbal or in writing. Insurance contracts and contracts for the sale of land must be in writing.
The problem with a verbal contract is that it may be difficult to prove if there is a dispute over the terms. People can forget or have different interpretations of what has been agreed. If there is no written record of contractual terms, it could be your word against theirs.
The greater the value of a contract, or the more complex the conditions of the agreement, the greater is the need to have the contract in writing.
What makes a legal contract?
Six fundamental principles need to be satisfied for a contract to be legally binding:
- Agreement - where one party makes an offer and the other accepts it.
- Consideration - where one party gives something in exchange for something from the other party.
- Intention - where both parties intend to abide by the contract.
- Capacity - where both parties are mentally capable of understanding the contract.
- Genuine consent - where both parties agree to the contract of their own free will.
- Legality - where all parts of the contract are legal.
Contract law is largely based upon common law principles and in many cases these have been modified or altered by legislation. It is a complex field and you should seek professional legal advice from a solicitor.
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Employment and the law
Contracts - Law Handbook, Legal Services Commission of South Australia