THE LAW OF A CONTRACT

What is a contract?
Legally binding agreement that can
enforced in a court of law
Reduces conflict
 Learning Intentions
By the end of this section students should be able
to:
Name and explain the 7 elements of a legally
binding contract

Explain 4 ways a contract can be terminated

Explain 3 remedies for breach of contract

 Elements of a legally binding
contract (7)
1. Offer
2. Acceptance
3. Consideration
4. Intention to contract
5. Consent to contract
6. Capacity to contract
7. Legality of form
Elements of a legally binding agreement
1. OFFER
Formation of a contract involves one party making an
offer to another party.
An offer can be made orally, in writing, by action.
Offerer person making the offer
Offeree person receiving the offer
An offer can be terminated in the following ways:
if it is rejected by the offeree
withdrawn at any time by the offerer before
acceptance
if the time for acceptance has expired
2. ACCEPTANCE
When the other person agrees to all terms of original
offer without any conditions
 Example
Eimear has made an offer of 25,000 for the car she
liked. It is on special offer as it is the last one left in
stock, the salesman at classy cars says that he will
get back to her with an answer, because another
customer is also interested.
The next day the salesman phones Eimear to say she
can have the car for 30,000. Eimear says no, the max
she will pay is 25,000. she is annoyed at how she is
being treated and tells the garage she is no longer
interested and is withdrawing her offer. The garage
then says they will accept her offer of 25,000 and
demand payment. Does Eimear have to pay?
 Answer
No!
Eimear did make an offer but it was not
accepted. The garage then made a
counter offer of 30,000 which was
rejected so there was no longer any offer
for the garage to accept.
3. CONSIDERATION
Is what each party offers the other as evidence of
their agreement.
It usually takes the form of money in exchange for
goods and services received.

4. INTENTION TO CONTRACT
Must be the intention of the parties to create a
legally binding agreement.
Personal agreements are not legally binding, if there
is an agreement by two people to go to the cinema and
one person does not turn up, the other person cannot
sue because there was no intention to create a legal
contract.
5.CONSENT TO CONTRACT
The parties to a contract must agree to its terms. Must
both agree on what is being sold/bought and the price.
The parties must be entering the contract voluntary; no
person should be forced into making a contract.

6. CAPACITY TO CONTRACT
In order for an agreement to be a valid contract the
parties must have the legal right to do so. Some people do
not have the legal right to enter into contracts. These
include:
Companies acting Ultra Vires a firms power is said to be
limited by its objectives in the memorandum of
association. E.g. a company set up to sell cars cannot open
a hotel.
Under 18 cannot, except for necessities (clothes)
A person under influence of alcohol
A person of mental illness
A bankrupt person
7. LEGALITY OF FORM
A contract must be drawn up in the correct legal
form.
Contracts can be oral, but certain contracts must be
written for example hire purchase agreements and
insurance policies.
 Termination of a contract
Performance
Agreement
Breach of contract
Frustration
 TERMINATION OF CONTRACT
1.Performance: When the parties have
carried out their side of the contract as
agreed.
2. Breach: One party has failed to perform
their obligations in the contract. Breach of
condition this entitles the injured party to
abandon the contract and sue for damages.
3. Agreement: When the parties to a
contract agree to end the contract
4. Frustration: If an unforeseen event
occurs and makes the contract impossible it is
terminated. This frustration can also relate to
death, bankruptcy or lapse of time.
 Remedies for a breach of
contract
1. Sue for financial compensation- injured
party does not loose out financially
2. Specific Performance getting the
court to order the other party to keep
their side of agreement
3. Rescind the contract (Cancel)- if a
condition of a contract is broken, the
injured party can refuse to honour it.
E.g. a pink saloon car being delivered
instead of a red coupe