We’ve now had a look at some key terms for a contract, examples, and you might have even come up with a few of your own.
It’s time to have a closer look at what a contract really is, and how to recognise one when it appears!
Why don’t you have a go at coming up with your own definition of a contract? Hover below to see what key terms you need in your definition!
There are three elements that we can pull from the definition sentence we completed above, these are:
1. An offer: one side, or party, needs to make an offer to the other side.
e.g. Would you like this book for a £1?
2. Acceptance: The other side needs to accept the offer that is made
e.g. Yes I’d love that book!
3. An Exchange: Both sides need to exchange something for it to be a contract.
e.g. Here is the book, £1 please!
If your definition has these three elements then you’ve successfully created your own contract definition. Extra points for including, ‘legally binding‘, ‘parties‘ or ‘agreement‘ in your definition!
Here are some scenarios:
Scenario 1: Daniel offers to give Adam a chocolate bar if Adam gives him £1. Adam accepts.
Scenario 2: Frankie promises to give Kieran her old laptop at the end of the month, without asking for anything in return.
Scenario 3: Olivia buys a 12-month mobile phone contract. She will pay the phone company £20 a month, and in exchange, she gets unlimited texts, calls, and data usage.
Scenario 1: Adam takes the chocolate bar but runs away without giving Daniel £1.
What would happen if the Police find Adam…
With the chocolate bar?
They would force Adam to give the chocolate bar back, or pay the agreed £1
After he has eaten the chocolate bar?
As he can’t give the chocolate bar back, he would be made to pay Daniel £1
Explanation: If someone breaks their legally binding agreement then the law will make sure that the person who lost out can force that person to either give them what was promised or repay them in another way.
Scenario 2: Frankie promises to give the computer at the end of the month, but then changes her mind and decides to sell it on the internet instead.
Has Frankie broken a legally binding agreement?
No, an offer to give someone a gift is not a legally binding agreement.
Scenario 3: Olivia decides she wants to end the 12-month contract after only 10 months.
What, if any, are the consequences for this?
Olivia has promised to pay the mobile phone company £20 every month for 12 months. If she wants to end the contract after 10 months she still has two months left of her promised ‘term’ which means she will have to pay £40 to discharge her obligations.
Have a think about the following scenarios!
Does a contract have to be written down for it to be legally binding?
Contracts can be made verbally or by writing them down. If they are written down people will often put their signature and the date on them to prove that it happened.
Would you rather have a verbal contract or a written contract?
Contracts that are made verbally between the two sides are just as binding as those that are written down but can be more difficult to prove if the two sides disagree about what was agreed. Therefore, a written contract is probably preferable.
