Contract
Contract Law

A contract is a 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.

The significance of an offer is that when it is accepted (subject to the other essential criterion, below) the contract is formed.

In addition to being accepted, an offer may be rejected, a counter-offer may be made, the offer may lapse or the offeror may withdraw the offer, such that it is no longer available to be accepted.

Option Agreements prevent an offer being withdrawn for a period of time.

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 in a contract may be executory, executed or past. Executory consideration is a promise that will be performed in the future, executed consideration is a promise that has been performed thus giving rise to the obligation on the offeror to perform their promise, and past consideration is where a promise is performed before the formation of the contract and as such cannot be used to bind the other party to the contract: importantly, past consideration is not sufficient to form a binding contract.

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.