C o n t r a c t - E l e m e n t s o f a C o n t
C o n t r a c t - E l e m e n t s o f a C o n t r a c tr a c t
Contract: the elements of a contract Contract: the elements of a contract
The first step in a contract question is always to
The first step in a contract question is always to make sure that a contract actually exists. Theremake sure that a contract actually exists. There are certain elements that
are certain elements thatmustmust be present for a legally binding contract to be in place.be present for a legally binding contract to be in place. The first two are the most obvious:
The first two are the most obvious: •
• AnAn offeroffer: an expression of willingness to contract on a specific set of terms, made by the: an expression of willingness to contract on a specific set of terms, made by the
offeror
offeror with the intention that, if the offer is accepted, with the intention that, if the offer is accepted, he or she will be bohe or she will be bound by aund by a contract.
contract. •
• AcceptanceAcceptance: an expression of absolute and : an expression of absolute and unconditional agreement to all the terms setunconditional agreement to all the terms set out in the offer. It can
out in the offer. It can be oral or in writing. The acceptance be oral or in writing. The acceptance must exactly mirror themust exactly mirror the original offer made.
original offer made. •
• AAcounter-offercounter-offeris not the same as an acceptanis not the same as an acceptance. A counter-offer extinguishes thece. A counter-offer extinguishes the original offer: you can’t make a counter-offer and
original offer: you can’t make a counter-offer and then decide to accept then decide to accept the original offer!the original offer! But…
But… •
• AA request for informationrequest for informationis not a counter-offer. If you ask the ois not a counter-offer. If you ask the offeror for informationfferor for information or clarification about the offer, that doesn’t extinguish the
or clarification about the offer, that doesn’t extinguish the offer; you’re still free to acceptoffer; you’re still free to accept it if you want.
it if you want.
It is very important to distinguish an offer from an
It is very important to distinguish an offer from an invitation to treatinvitation to treat– that is, an invitation for – that is, an invitation for other people
other people to submit offers. Some everyday situations which we might think are offers are into submit offers. Some everyday situations which we might think are offers are in fact invitations to treat:
fact invitations to treat:
○
○ Goods dGoods displayed iisplayed in a shop win a shop window or on a ndow or on a shelf shelf ..
When a book is placed in a shop window priced at £7.99, the bookshopWhen a book is placed in a shop window priced at £7.99, the bookshop
owner has made an invitation to treat. owner has made an invitation to treat.
When I pick up that book and take it to the till,When I pick up that book and take it to the till, I I make themake theofferofferto buy theto buy the book for £7.99.
book for £7.99.
When the person at the till takes my money, the shopWhen the person at the till takes my money, the shopacceptsacceptsmy offer,my offer, and a contract comes into being.
and a contract comes into being.
○
○ Adverts basically work in the same way as Adverts basically work in the same way as the scenario above. Advertisingthe scenario above. Advertising
something is like putting it in a shop
something is like putting it in a shop window.window.
○
○ AuAuctictionons s :: •
• The original advertising of the auction is just an invitation to treat.The original advertising of the auction is just an invitation to treat. •
• When I make a bid, I am making an offer.When I make a bid, I am making an offer. •
• When the hammer falls, the winning ‘offer’ has been accepted. The seller now has aWhen the hammer falls, the winning ‘offer’ has been accepted. The seller now has a legally binding contract with the winning bidder
legally binding contract with the winning bidder (so long as there is no reserve price (so long as there is no reserve price thatthat hasn’t been reached)
hasn’t been reached) N.B: an offer can be
N.B: an offer can be revoked at any time before it is accepted, revoked at any time before it is accepted, so long as you inform the personso long as you inform the person you made the offer to that the
you made the offer to that the offer no longer stands.offer no longer stands. •
This is best illustrated by an example: suppose I promise to give you my watch, but you don’t give me anything in return. If I break my promise and keep my watch, you can’t then go to court and make me give it to you. The contract isn’t legally binding: you didn’t give me any
considerationfor my promise.
So put simply, consideration isthe price paid for the other’s promise. There are four legal maxims that apply to consideration:
○ Consideration must movefrom the promisor;
○ Consideration need not move to the promisee; ○ Past consideration is not good consideration;
○ The consideration given must besufficient, but it need not be adequate.
The detail isn’t necessary here, but there is a separate note on them if you’re interested.
• Intention to create legal relations: if my brother offers me a lift to London, and I say I’ll contribute to the cost of the petrol and then don’t, there isn’t necessarily a binding contract that he can sue me under. If the arrangement is an informal, social one, then my offer to pay for petrol probably wasn’t made with the intention of being legally bound (see the definition of ‘offer’ above).
In general, arrangements of a social nature are presumed not to be legally binding, whilst commercial arrangements are presumed to be intended as binding contracts. Of course, these presumptions can always be rebutted in court b y producing evidence to the contrary.
For Reference: Author: Deborah Smithies, August 2007
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Regulatory Requirements: Contract Law:
Essential Elements of a Contract
Minimum two parties :- Atleast two parties are needed to enter into a contact. On has to make an offer and other must accept it. The person who makes the 'proposal' 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is mad called the 'offeree' and the person who accepts the offer is called the 'acceptor'. Offer and acceptance :- There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful.
Legal obligations :- The parties must intend to create a legal obligation.The agree sought to be enforced should contemplate legal relations between the parties to it. Lawful consideration:- A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law 'consideration'. Consideration is an essential element of a valid contract. It is the pric which the promise of the other is bought. A contract without consideration is void. Th consideration may be in the form of money, services rendered, goods exchanged or sacrifice which is of value to the other party. This consideration may be past, present future, but it must be lawful.
Competent parties:- The parties making the contract must be legally competent in sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a le gal n Free consent:- The contracting parties must give their consent freely. 'Consent' me that the parties must agree about the subject matter of the agreement in the same s and at the same time. Consent is said to be free if it is not induced by coercion, undu influence, fraud,misrepresentation or mistake. The absence of free consent would aff legal enforceability of a contract.
Lawful object:- The object of the agreement must be lawful. An agreement is unla it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of anoth opposed to public policy.
Not expressly declared void:- An agreement expressly declared to be void under t Contract Act or under any other law, is not enforceable and is, thus, not a contract. Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.
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or uncertain. If an agreement is vague and its meaning cannot be ascertained, it can enforced. Also,the terms of a contract must be such as are capable of performance. agreement to do an impossible act is void and is not enforceable by law.
Legal formalities:- Generally, a contract may be oral or in writing. Howe ver, certai contracts are required to be in writing and may even require registration. Therefore, law requires an agreement to be put in w riting or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to reduced to writing.
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