The function of a contract is to set out the rights and responsibilities of each party so that they both know exactly what is required of them and what they can expect from the commercial relationship or transaction. Most business relationships are governed by a contract of some sort, although not necessarily in written form.

This factsheet outlines the basic circumstances under which a commercial contract is made and also explains whether a contract can be implied, whether a verbal agreement is legally binding, and which types of contract are prohibited by law.

Note that this factsheet deals with the principles provided in English and Welsh law. Contract law in Northern Ireland is similar, although there are minor differences. Contract law in Scotland is very different.