Introduction to Business Law: The Essentials of a Contract

Essential Points in Contract

•       A contract is a legally binding agreement

•       A contract is formed when an offer is accepted

•       An offer is made when one person proposes a set of terms to another with the intention that both will be bound if it is accepted

•       An invitation to treat is not an offer: but an invitation to negotiate or an invitation to make an offer

Acceptance

•       As soon as an acceptance of an offer is received a contract is created

•       It is not possible to accept an offer by doing or saying nothing

•       When the postal rule applies, an acceptance by letter or electronic mail is effective when sent

Unilateral Contracts

•       An offer of a unilateral contract can be accepted only by performing the act requested; Carlill v Carbolic Smokeball Co [1893]

•       A counter offer is not an acceptance and revokes the original offer

•       A request for more information does not revoke the offer

Certainty

•       A contract will be created only if a reasonable person could state with certainty what had been agreed; Scamell v Ouston [1941]

•       A meaningless term in a contract can be ignored; Nicolene Ltd. v Simmonds [1953]

Termination

•       An offer that has been revoked cannot be accepted

•       Revocation is effective when received

•       A person who refuses and offer cannot later accept it ( a counter offer is a refusal)

•       An agreement made ‘subject to contract’ is not a contract

Legal Relations

•       A contract will be created only where the parties intend to create legal relationships

•       In business transactions it is presumed that the parties intended to create legal relations (unless evidence to the contrary)

Consideration

•       A contract will only be created where the parties give some consideration to each other

•       Consideration consists of a right given to one party or a loss or detriment suffered by another

•       A contract is a bargain the consideration of one party given in exchange for the consideration of another

•       A past act cannot be given as consideration (unless the other party requested that the act be performed and both parties all along contemplated that payment would be made for it)

•       Consideration must be of some value

Formalities

•       Most contracts do not need to be in writing

•       Most contracts are not in writing

•       Contracts in the form of deed do need to be in writing (Real Property Transfers)

•       Some contracts are safer in writing (employment contracts)

Minors

•       A person who is capable of making a valid contract has capacity

•       Contracts made by minors may be vail, voidable or void

•       Loans to minors cannot be enforced unless the minor agrees to pay the loan after they are 18

•       Minors are not bound by contracts for unnecessary goods