Introduction to Contract Law

Guide

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There are four basic elements to create a legally binding contract: offer, acceptance, consideration and intention to create legal relations. Normally the question of whether the parties have agreed is tested by asking whether one party has made an offer which the other has accepted. Agreements may not give rise to a binding contract if they are incomplete or not sufficiently certain (i.e. an agreement to agree).

 

Offer

It is important to distinguish between offers, which can be accepted, and an "invitation to treat" which is an invitation to someone for them to make an offer, which the first party can then accept. An invitation to treat gives the party who issues the invitation control over when (and if) the contract is made. There is no requirement to have an invitation to treat: a valid contract can be formed when an offer is accepted. On auctions, it is the bid which is the offer.

 

Acceptance

An acceptance is agreement to the terms of an offer. Offers can be accepted by conduct. If someone purports to accept an offer, but does so on different terms that will be a counter-offer, rather than an acceptance. The acceptance must normally be communicated to the offeror. Generally, silence cannot be treated as an acceptance. In exceptional circumstances (for example, where the offeree has been given terms of dealing and the offeree proceeds with the dealing without formally communicating acceptance) silence may be treated as an acceptance.

 

Intention to Create Legal Relations

An agreement may be incomplete, for example where the parties have agreed on essential matters of detail but have not agreed other important points, although an agreement may be complete even if it is not worked out in meticulous detail. There will usually be no contract if the parties agree "subject to contract" but never agree on the terms of the contract.

 

Consideration

This can be something of benefit to the person who has the obligation or who makes a promise to do something (called the promisor) or something which is a detriment to the promisee (the person who wants to enforce the obligation or who has the benefit of the promise). As long as some value is given for the promise, the courts will not consider whether "adequate" value is given.

 

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Document Type:

Checklist / guideline / manual / policy / procedures

Category:

Business > Commercial, Sales and Marketing > Commercial / Franchise / Sponsorship Agreements

 
Keywords:

Guide

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Contract Law

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Common Law

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Contract

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Summary

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elements of contract

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termination of contract

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