CONCEPT OF CONTRACT

Definition
A contract is a voluntary agreement between two or more parties that a court will enforce. The
rights and obligations created by a contract apply only to the parties to the Contract (i.e., those
who agreed to them) and not to anyone else. As Justice Yanosik of the Alberta Court of Queen's
Bench wrote in 406868 Alberta Ltd. v. Westfair Foods Ltd:
"The essence of contract is agreement. A contract is a legally recognized agreement between to
or more persons giving rise to obligations that may be enforced in the Courts. It is not what an
individual party believed or understood was the meaning of what the other party said or did that
is the criterion of agreement. The contract must be clearly created by the parties language and
conduct. From what they have said, done, or written there must be established a bargain or an
agreement. It is not necessary that all essential terms of the contract have been agreed upon.
Certain essential terms may be implied.
"The test of agreement for legal purposes is whether the parties have clearly and unequivocally
expressed their intention to contract and the terms of such contract. It is not what an individual
party believed or understood was the meaning of what was said and done. If a contract is not
clearly created by the parties language or conduct the Court cannot construct one. It is for the
parties to use such language or employ such conduct as will make it plain that they intended a
contract.
"Oral contracts are as legally binding and enforceable as written ones, but difficulties can and do
arise when one or the other of the parties disputes or denies the contract or essential terms which
are asserted by the other. Where there is no single document to which reference can be made in
order to decide if a contract exists between the parties, then everything that occurs between the
parties relevant to the alleged contract must be considered in deciding the issue."
The French Civil Code of 2009 defines a contract at 1101 as:
"A contract is an agreement by which one or several persons bind themselves, towards one or
several others, to transfer, to do or not to do something."
Similarly, 1378 of the Quebec Civil Code, albeit in its typical stilted English:

"A contract is an agreement of wills by which one or several persons obligate themselves to one
or several persons to perform a prestation."
By agreement of wills it is meant that the agreement is voluntary. Prestation is best described as,
with apologies to William Shakespeare, to do or not to do something.
The contribution of contracts and contract law to the world in fostering peace and economies
cannot be understated. The most eloquent expression of this phenomenon came from Henry
Sidgwick:
"Withdraw contract suppose that no one can count upon the fulfillment of any engagement
and the members of the human community are atoms that cannot effectively combine; the
complex co-operation and division of employments that are the essential characteristics of
modern industry cannot be introduced among such beings."Suppose contracts freely made and
effectively sanctioned, and the most elaborate social organization becomes possible."
A contract is an agreement that is enforceable by law. A contract therefore has legal implications
for the parties who enter into a contract. A mere agreement is not legally binding and therefore
neither of the parties is liable if anyone breaks the agreement.
What makes a contract different from an agreement?
A contract requires not only an agreement between parties but also something of value must be
passed from one party to the next to make the contract binding. For example, you offer to sell a
friend your used text books for $1000.00. After inspecting your textbooks the friend agrees and
pays $1000.00. The $1000.00 paid here is the consideration i.e. something of value that is passed
from one party to the next. Consideration is the price paid for a promise. You promised to let
your friend have your textbooks if he paid $1000.00. This $1000.00 makes the agreement
binding. You are therefore obligated to deliver the books to your friend and cannot decide to sell
the books to someone else or to ask for a higher price.
Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this
offer and mow the lawn. The work done here is an act of forbearance. You are giving something
of value to your neighbour to receive payment for the job. The consideration in this case is the
work done by you. It is the price that you have paid for the promise to be paid money for the job.
Consideration passes from promise to promise.

Elements
In order for a contract to be valid, certain elements must exist:

Competent parties: In order for a contract to be enforceable, the parties must have legal
capacity. Even though most people can enter into binding agreements, there are some
who must be protected from deception. The parties must be over the age of majority (18
under most state laws) and have sufficient mental capacity to understand the significance
of the contract. Regarding the age requirement, if a minor enters a contract, that
agreement can be voided by the minor but is binding on the other party, with some
exceptions.(Contracts that a minor makes for necessaries such as food, clothing, shelter
or transportation are generally enforceable.) This is called a voidable contract, which
means that it will be valid (if all other elements are present) unless the minor wants to
terminate it. The consequences of a minor avoiding a contract may be harsh to the other
party. The minor need only return the subject matter of the contract to avoid the contract.
If the subject matter of the contract is damaged the loss belongs to the non-avoiding
party, not the minor. Regarding the mental capacity requirement, if the mental capacity of
a party is so diminished that he cannot understand the nature and the consequences of the
transaction, then that contract is also voidable (he can void it but the other party cannot).
Furthermore, if the party with diminished mental capacity cannot act in a reasonable
manner regarding the contract and if the other party knew of the defect, then that contract
is void. Mental disease alone does not necessarily mean that a party is mentally
incompetent for contractual purposes. The distinction between a voidable and a void
contract is that a voidable contract is enforceable unless avoided by the protected party. A
void contract cannot be enforced by anyone.

Proper subject matter: The purpose of the contract must be a legal one in order for the
contract to be valid. Subject matter is not proper if it is contrary to public policy (such as
an agreement to commit a tort or a crime or an agreement in restraint of trade), immoral
(the only use of the subject matter is to violate the law), or if it violates a statute (such as
a gambling contract or a usurious contract.)

Offer: An offer is a statement that creates a power of acceptance in the offeree. It does
not have to be in a certain form. However, to be valid, an offer must be communicated to
the offeree, it must express an intent of willingness to enter into a contract (with serious

intent and not as a joke or as merely preliminary negotiations), and it must be sufficiently
definite and certain (especially with regard to the identity of the parties, the subject
matter, the price and the time and place of performance). It is generally effective when
the communication is received by the offeree.

Acceptance: The power of acceptance lies only with the offeree, and the acceptance
must relate to the terms of the offer (with no changes to the terms of the offer or
counteroffer, if applicable). The acceptance is effective when it is dispatched (put out of
the offerees possession). This is called the mailbox rule (if use of the mails is a
reasonable method of accepting, then the acceptance is effective when posted). This rule
is interpreted broadly and not limited just to use of the mails. The acceptance must be
made within any time limit and in any manner as specified by the offer. A counteroffer
terminates the offer. A counteroffer is treated as if it were a new offer. Any change to the
offer by the offeree results in the termination of the offer and the creation of a
counteroffer. A grudging acceptance by the offeree includes complaints about the
oppressiveness of the agreement but no alteration of the terms of the original offer.
Grudging acceptances are problematic because they create confusion about whether there
has been an acceptance or a counteroffer. This may lead to litigation.

Consideration: To be enforceable, a contract must have sufficient consideration.

Consideration is something of value (money, labor, goods or a promise to act or not act)
given in exchange for a return promise or a performance and only if theparties intend to
make such an exchange. Consideration is something that is bargained for and given in
exchange for a promise or a performance.

Differences Between A Simple & A Speciality Contract

A simple contract can be made orally, in writing or by the implications deemed from the actions
of the parties. A specialty contract must be signed by the parties sealed, for example with a
company seal and finally it must be delivered.
Examples of specialty contracts include:
1. Mortgages and leases for over three years
2. Sale of land

3. Contracts of insurance
4. Hire purchase agreements
5. Transfer of company shares
6. Assignments of copyright

Difference Between An Offer & An Invitation To Treat

An invitation to treat is not an offer but an invitation to bid or bargain for an item. For example,
at an auction persons may bid on various items presented. An invitation to treat also occurs also
when goods are advertised for sale in the media or in shop windows. Goods in a shop window or
goods advertised are not an offer by the owners of the goods but are technically an invitation for
interested persons to make an offer.