A contract is a legally binding agreement concerning a bargain, which is essentially commercial in its nature and involves the sale or hire of commodities such as goods, services or land. Such contracts are called simple or parol contracts, as they are (usually) enforceable without having to be put in writing.
Did you know that you probably make hundreds of contracts every year when doing everyday things like shopping, getting your haircut, or having your mobile repaired? None of the legal jargon that the words ‘forming a contract’ may bring to mind will have been involved in such transactions. They are legally binding without documents, signatures or witness. If a good or service provided to you is defective, you have legal rights arising from the contract you made with the shop. To enforce those rights you will of course have to prove the existence of the contract. The receipt is handy evidence of this. However, if you’ve lost this, you can use other evidence like a credit card statement or a chequebook record or the word of a relative who was with you at the time. (Law for Business Students, Alex Adams)
Written evidence is useful proof that a contract was made. It is sometimes crucial proof of your rights if the contract involves complex terms or future performance.
Some contracts must be written in order to be valid. E.g. Contracts to sell land, or contracts to obtain credit. Without the contractual document, the law will treat the transaction as if it does not exist, regardless of other available evidence.
Essentials of a Binding Contract
No contract can come into being unless the following features exist:
1. An Offer:
This may be defined as a clear statement of terms on which one party (the offeror) is prepared to do business with another party (the offeree). An offeror may be bilateral or unilateral. Most offers are bilateral i.e. such an offer consists of a promise made in return for a promise, e.g. in a sale of goods contract, the offeror (buyer) promises to take and pay for the goods and the offeree (seller) promises to supply the goods of an appropriate description and standard. A unilateral offer is a promise made in return for the completion of a specific act. An offer of reward for the return of lost property falls into this category.
A legally binding offer will include:
- Clear stated terms.
- Intention to do business.
- Communication of that intention
They all must exist for a valid offer to have been made.
2. An Acceptance:
The offeree by acceptance agrees to be bound by all the terms of the offer. To be legally binding, such acceptance must fulfil these three rules:
- It must be a mirror image of the offer.
- It must be firm.
- It must be communicated to the offeror.
3. Consideration:
It is a benefit or right for which the parties to a contract must bargain. The contract is founded on an exchange of one form of consideration for another. Consideration may be a promise to perform a certain act - e.g. a promise to fix a leaky roof. Whatever its particulars, consideration must be something of value to the people who are making the contract.
4. Intention to be Legally Bound:
In order to determine whether the parties intend their agreement to be legally binding, the courts are guided by two presumptions:
- Parties to a domestic or social agreement do not intend to be legally bound.
- Parties to a business agreement intend to be legally bound.
The above information is meant to give you a very basic idea of what a contract is and how it works. With this post we are introducing our series on Business Law, which is mistakenly considered to be boring and theoretical - you will see that it is the opposite.
I hope you will find this and the following articles useful.
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