The Contract Part 1: The Elements

Examples:
Sale and purchase contract
Employment contract
Lease contract

Contract v agreement

A contract is a legally binding agreement which is enforceable in a court of law
An agreement is not necessarily a contract

Elements of a valid contract

Offer
- A legally binding promise made by one party (the offeror) to another party (the offeree)

Offers need to be distinguished from non-offers such as invitations to treat

An invitation to treat is not an offer because it represents only an invitation to make an offer

Advertisements are normally only invitations to treat

Acceptance

An important element in the formation of a legally binding agreement is acceptance
Unilateral contracts – Acceptance takes the form of undertaking the act by performance
Bilateral contracts – Acceptance occurs with a verbal or written response
The offeree must accept with full knowledge of the offer; any attempted acceptance made in ignorance of the offer will not be valid

Consideration
Consideration is what each contracting party bargains for and gives in exchange for the return promise or performance of the other party
Eg money
Formal Contracts
No need for consideration as the contract is valid because of its form such as deeds
Simple Contracts
Valuable consideration is required for the agreement to become a contract
Consideration must not be past
Past consideration occurs where a promise is given after an act has been performed
Consideration must be:
Present (executed) consideration which is an act done in return for a promise
Future (executory) consideration where the parties exchange promises. Each promise being the consideration for the other

Intention to create legal relations
Is considered to be a necessary element of every legally binding agreement in order to distinguish from social and domestic arrangements that are considered not to form legally binding agreements
Commercial and business agreements
There is a presumption that the parties intend to create legal relations
Usually money is involved in commercial and business agreements and the courts are more likely to find the necessary intention to create legal relations
The presumption may be rebutted when there is proof that one of the parties expressly excluded legal relations such as
Express use of the phrase “this arrangement is not intended to be legally binding”
Agreement to be binding in “honour only”

Certainty of terms
There needs to be sufficient completeness and clarity before a contract can be enforced
Courts will not enforce vague or incomplete agreements
Contracts may be rendered unenforceable because of a lack of certainty of terms
Since there are important consequences, courts have developed a number of test to clarify uncertain terms aiming at upholding the validity of the agreement
In attempting to determine whether a term in a contract is sufficient certain, the courts have developed the following rules
Factual matrix of the case
Upholding the validity of the agreement within reason
Characteristics of the agreement
Third parties
External aids and industry benchmarks
Illusory terms

The Contract Part 2 – The Parties

Capacity
Certain vulnerable individuals may not have the required legal capacity to contract
Minors
Persons below the age of 18
Contracts with minors fall within the following categories
Valid contracts
Voidable contracts
Void contracts

Drunkards
Persons are affected by alcohol or other substances
Mentally incapacitated, unsound mind
The person who has contracted with the drunkard will be deemed to have taken advantage of a person with insufficient legal capacity

Bankrupts
Do no enjoy full legal powers to contract
Restricted by the Bankruptcy Act 1966 (Cth)
Voidable at the option of the bankrupt
Can reaffirm the contract if they wish, after they have been discharged from bankruptcy

Mentally incapacitated

- Voidable at the option of the party who is mentally incapacitated if
Unsound mind that they did