contract

A contract is a legally binding agreement between at least two parties.

Overview of Contracts

In order to form a contract, the essential elements are:

1. offer;
2. acceptance;
3. consideration;
4. capacity;
5. intention to create legal relations;
6. no vitiating factors.

Offer

An offer is a promise to do or not to do something in sufficiently clear terms, that may be accepted by another. An offer should be distinguished from an invitation to treat and a mere expression of intention to do or not to do some act. Offers do not necessarily need to be made to one person – that may be made to the world at large or to specific groups of people.

Acceptance

When an offeree (the "acceptor"), accepts an offer, the contract is formed. Acceptance may be in writing, orally or implied by conduct and silence cannot amount to acceptance of an offer other than in unilateral contracts or the postal acceptance rule applies.

Consideration is a promise, an act, or a promise not to act and represents the value in the contract. For example, in a services contract for services, one person will promise to perform services (the consideration of one party), and the other will promise to pay money in exchange for the service (the other party's consideration).

Consideration must move from the promisee, as the English common law system does not enforce gratuities as the civil law system does. Also, consideration need not be adequate, but must be sufficient. That is to say that there is no requirement in law that the value of the consideration between the parties must be equal or near equal provided there has been no vitiating factors.

Capacity

In order to enter a contract, a party must have the legal capacity to do so, and as such cannot be a bankrupt or a minor (subject to the Minors' Contracts Act 1987). Under this Act for instance minors are able to enter into contracts for necessities.

Intention to create Legal Relations

The parties must intend that the offer and acceptance be binding upon them. There is a presumption operating in commercial contracts that the parties intend to create legal relations.

Usage: The contract for the supply of goods was entered into by the retailer and supplier.

Related Words: conditions of contract; notice of termination; invitation to treat; option agreements; termination of contract; promissory estoppel.