A contract is an agreement between two or more individuals and/or companies. The participants in a contract are known as the ‘parties’. The contract can be a written document, however sometimes an agreement may be implied (such as verbally or by correspondence between the parties). Generally speaking, one (or more) party(ies) will provide a good or a service, and in exchange the other party(ies) will provide something of value (such as monetary payment, or some other form of value). This exchange of value for a good or service is known as ‘consideration’, and it is a key element of a contract.
Contracts are important, and it is critical to understand how they work and what they include. They are not necessarily complicated but they can come in many different forms, and cover a wide variety of different exchanges of value. Some contracts can transfer a good (“I sell you this car”) or provide a service (“I will do this for you on this date”), while others can grant permission (“you are allowed to do this for a year”). But ideally every contract should clearly set out who they involve, what the agreement is about, the details of how the agreement will be carried out, and what happens if anything goes wrong. With these elements in place, a contract will fulfil its purpose of ensuring there is no misunderstanding between the parties to the agreement.
Illustration by Kristine Buerano