What Is a Contract?

1 What is a contract?

A contract is an agreement between two or more people, or parties. It could be oral or written. A contract involves an exchange of promises in return for something of value to each party. Samuel (2007) uses the Academy of European private Lawyers European Contract Code to describe a contract as "…the agreement of two or more parties to establish, regulate, alter or extinguish a legal relationship between the said parties." A contract is legally binding, and each person must adhere to the terms of the contract that have been set.

2. Formation of a contract

Contract formation is the steps that must be carried out in order for a contract to be established. This can be broken down into the following:

I. Offer and acceptance – This is the starting point of a contract. One party will make an offer to another, and should they choose to accept this will make a contract between them.

II. Consideration – The prices and values of what is to be exchanged is determined. At this point each party establishes what will be exchanged.

III. Intension to create legal relations – The necessity to make the contract a legal matter is decided. Under circumstances where a contract is made involving the law and official statement will be made.

IV. Formal requirements – If there is a need for a written statement then each party will sign this indicating their agreeing to the terms.

V. Delivery – The terms of the contract must be satisfied by each party as per the agreement.