GUIDE - INTRODUCTION TO CONTRACT LAW

[Please note that this is just a general summary of position under common law and does not constitute legal advice. As each jurisdiction may be different, you may want to speak to your local lawyer.]

A. SUMMARY

1.     Contract law governs most agreements between parties, whether oral or written, that involve goods, services, money, employment contracts and real estate deals. Contract law derives mainly from the common law.  Normally a party signing a written contract is bound by its terms, whether or not he has read them. Contracts can be oral, partly oral and partly written or written, and can be made informally.

2.    Some legislations do impose requirements for contracts to be in writing or in a particular form. These include contracts for the sale or other disposition of an interest in land, some consumer credit agreements and some requirements relating to employees.

B. ELEMENTS TO A CONTRACT

3.     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). The courts apply an objective test in deciding if the parties have reached agreement.

Offer

4.     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

5.     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. There are special rules for when an offer is accepted by post (the general rule is that acceptance takes effect when the letter is posted) or some instantaneous mode of communication e.g. telephone or e-mail (where the normal rule - that the acceptance must be communicated - applies). 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.

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