Contracts are the fundamental basis of any business income received. Breaching a contract can result in serious consequences and possible costs. Breaches of contract need to be taken seriously and should not be undertaken lightly. People enter into contracts every day without really paying attention. For example when a person buys groceries or pays for fuel they are entering into a contract. So it is important to understand when a contract has been created.
What is a Contract?
A contract is an agreement between 2 parties (eg. 2 individuals, 2 companies, or a company and an individual) to provide services or products to one party for consideration (eg. Payment or other compensation).
Despite popular belief, contracts do not HAVE to be in writing in order to be enforceable. Contracts can be:
- In writing,
- A combination of verbal and written
What makes up a Contract?
An agreement must contain 3 things in order to be considered a contract:
- An Offer
- An Acceptance
1. An Offer
An offer refers to an offer to enter into a contract. For example, a quote to do work for a person is considered to be an Offer. Verbally telling someone that you can perform work for them for a set amount, will be considered an offer.
2. An Acceptance
An acceptance of an offer can be either verbal or in writing. The acceptance needs to be clear as to what is being accepted. If someone seeks to change the terms of the Offer then this will create a new Offer in itself.
Consideration is the payment that is made for services or products. For example, if you pay $50 for someone to mow your lawn then the consideration is the $50 or the mowing of the lawn.
If there is no consideration then there will be no contract.
If you believe that a contract is being breached or there is a possible breach looming then it is best to obtain legal advice as soon as possible. Breaches of contracts can be enforced in a court, or terminated as a result of the breach, or financial restitution for the breach. Obtain advice as soon as possible.