What is a Contract?

A contract is a legally binding agreement between two or more parties (but usually two).

The law will consider a contract to be valid if the agreement contains all of the following elements:

• An intention between the parties to create legal relations;
• The parties to the contract must be recognised legal entities;
• The parties to the contract must have reached an agreement;
• The parties to the contract must have each provided something called consideration (which is defined later in this chapter);
• The parties had legal capacity (that is the mental capability to understand and enter into the agreement).

An agreement that lacks one or more of the elements listed above is unlikely to be a valid contract.

What are the Terms of a Contract?

Before entering into a contract, various statements will often be made by the parties.

A dispute may later arise as to which of the statements made should be considered a part, or a term, of the contract, and which should be taken as merely pre-contract talk, and therefore not a part or term of the contract.

Parties to a contract are bound only by its terms, not by any peripheral statements that may have been made.

However, a pre-contractual misrepresentation (that is, it is not a term of the contract) has legal consequences.

If a contract is in writing (either because it is required to be in writing by legislation or because the parties have chosen to put it in writing) then generally it is assumed that the written document is the complete statement of the terms of the agreement.

What this means is if one of the people who signs the contract later tries to argue something different was agreed to; the contract will be more likely to be accepted by a court.

You should seek legal advice before taking legal action to try and asset your rights under a contract.

Implied terms

Despite what has just been said, it is important to understand that in certain contracts terms may be implied, that is, read into the contract.

This may happen because the parties overlooked something important. Or it may happen because consumer protection legislation prescribes that certain terms will be automatically read into a contract.

By far the most important for present purposes are statutory implied terms – these have been reformulated under the new Consumer legislation as statutory consumer guarantees.