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Contracts in simple terms

Contracts form a part of your everyday life, so we think it’s about time you gave some thought as to what it actually means.

Whether you are buying milk from the corner store, starting a gym membership, or getting someone to fix the leaking tap in the kitchen, you are a party to a contractual agreement.

A contract is an agreement between two parties that is legally binding. The agreement does not have to be in writing – a verbal agreement can be just as binding.

What is involved in making a contract?

  • There are two or more parties
  • An agreement between the parties – for example, the store owner offers to sell a bottle of milk for $3 which is accepted by the customer
  • Consideration – which means something of value being given by each side, For example, the store owner is giving up a bottle of milk and the customer is giving up $3.
  • An intention to create legal relations. That is, once the transaction is complete, the purchaser intends to own the bottle of milk and the store owner intends to keep the $3. Both parties intend to be bound by the contract.

The above elements are crucial in the formation of a contract. If an element is missing, it is good cause to argue that a valid contract does not exist. That being said, Courts will generally try to find a way to make a contract valid then to invalidate a contract on technical grounds.

Do the parties need to state all terms of the contract?

Not necessarily. Most day to day contracts are informal, and the terms are implied by looking at the transaction and the intentions of the parties.

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