An agreement between two parties is only legally binding if four elements are present.
Essential elements of a valid contract
Offer
Acceptance
Consideration
Intention to create legal relations
Capacity and legality
Simple contract
A contract that can be in any form - written, verbal, or implied by conduct
Contracts for the sale of land must be in writing
Having contracts in writing is a good idea to have evidence of the terms agreed, but in most situations it is not a legalrequirement
Offer
A definite and unequivocal statement of willingness to be bound on specified terms without further negotiations
Form of offer
Can be in writing, verbal, or by conduct
Must be communicated to someone to form a contract (E.g. you find a missing cat and return to its owner unaware there is a reward = no contract.)
Can make an offer to a person, a group of people or the whole world.
What is not an offer
A mere statement of selling price
A mere statement of intention to sell
Invitations to treat
Invitation to treat
An invitation to another party to make an offer, not an offer itself
Examples of invitation to treat
Most advertisements
Shop window displays
Goods on a shop shelf
Offer of an unilateral contract
Most contracts are bilateral. E.g. both parties make a promise to each other.
In a unilateral contract where one party makes an offer, then only one promise is made; the offeror promises to do something in return if the offeree performs a specific act and the offeree makes no promise.
Ways of terminating an offer
Revocation (withdrawing)
Rejection
Death/Lapse of time
Revocation
This can happen any time before acceptance, even if the offeror agreed to keep the offer open
Revocation must be communicated to the offeree either by the offeror or a reliable third party.
Rejection
Once an offer is rejected it can no longer be accepted.
Rejection can be outright or by counteroffer.
Acceptance
The unqualified and unconditional assent to all terms of the offer
Acceptance is not effective until it is communicated to the offeror
Postal rule of acceptance
Acceptance is communicated when the letter is posted, not when it is received by the offeror
Consideration
An act or promise to do something of value or the price paid for a promise
Basic rule:
All simple contracts must be supported by consideration from both parties.
Types of valid consideration
Executed Consideration (occurs at the time of agreement)
Executory Consideration (occurs after the time of agreement)
Past consideration
Past consideration is not valid.
Consideration is past if it occurs before the agreement to receive payment is made.
Exception to general rule of past consideration:
If payment was reasonably expected before doing the work (e.g. in employment/business situations)
Promising to do something you were already legally obliged to do is not valid consideration
Exceptions where performing existing legal duties is valid consideration
Exceeding your existing legal duties
Performing existing legal duties provides extra practical benefits to the other party
Intention to create legal relations
Both parties must intend to enter into a legal relationship and contemplate legal action may arise if not fulfilled
The presumption of intention to create legal relations can be rebutted if there is clear evidence to the contrary
Terms of a contract
Statements/particulars/promises that form a part of a contract
Terms of a contract
The matters that have been agreed between the parties, and which are legally binding
Issues to consider regarding terms of a contract
Representations/misrepresentations
Express/implied terms
Types of term
Exclusion clauses
Representation
Statements/promises which do not form part of a contract
Misrepresentation
When a representation turns out to be false and it was relied upon to enter into a contract
Misrepresentation
The injured party (claimant) can sue the civil offence of misrepresentation, but not breach a contract
Types of misrepresentation
Fraudulent
Negligent
Innocent
Fraudulent or negligent misrepresentation
Damages and/or rescission
Innocent misrepresentation
Rescission only
Express terms
Terms specifically agreed between the parties, usually written into a contract for clarity
Implied terms
Terms that the law will imply into a contract in the absence of express terms, legally binding on the parties
Ways terms are implied into a contract
By the courts
By statute
Courts implying terms
It was the clear intention of the parties for the term to exist
It is customary for the term to exist, such as in a particular trade or industry
It is necessary to make the contract sensible or complete
Statutes implying terms
These are terms imposed by legislation
These implied terms are usually made for the protection of consumers or other more vulnerable parties to a contract
They are usually brought in where there is inequality between the relative bargaining power of the parties.
Examples are: Consumer Rights Act 2015, Unfair Contract Terms Act 1977, Consumer Credit Act 2006, Employment Rights Act 1996.
Consumer Rights Act 2015
Product quality must be satisfactory, fit for purpose, and as described
30 days right to reject if product < quality
Repair or replace if product > quality but > 30 days lapsed
6-month rule - fault assumed to exist at purchase if discovered in first 6 months