Elements of a contract

• * Every contract must be

• entered into voluntarily by two or more
parties having
• legal capacity to contract and
• intending thereby to create a legally binding
relationship between them.
• * Of the several essential elements in any
contract, the most vital are:
• • offer;
• • acceptance; and
• • consideration (unless the contract is by deed).
• * The contract is concluded when one party
makes an offer that is unconditionally accepted
by the other party.
• The offer and acceptance may be made through
the agency of one or more brokers.
• * If one party fails to keep its promise, the other
is entitled to legal remedy.
• * Other necessary elements include
• • intention to create legal relations;
• • legal capacity;
• • legality;
• • possibility of performance;
• • sufficient certainty of terms; and
• • prescribed form.
• * Intention to create legal relations, i.e. to
enter into a legally enforceable agreement, is
necessary in a formal
• contract .
• (A purely social or domestic arrangement or
agreement does not constitute a contract.)
• * Legal capacity is the legal right to enter into
contracts.
• Under English common law some parties,
including
– enemy aliens, convicts, infants and minors, lunatics
and drunks, may not have the full legal capacity to
contract, and
– a contract agreed by them may be unenforceable.
• * Legality of the contract
• an important requirement.
• A contract that is prohibited by statute (e.g. a
contract for the sale of prohibited goods, or a
contract for the sale of goods to a country that
is subject to an embargo) is an illegal contract.
• A contract that
• illegal at common law on the grounds of public
policy
– (e.g. a contract to commit a crime or a tort or to
defraud the Inland Revenue, or a contract that
prejudices national safety or the administration of
justice) is an illegal contract.
• Illegal contracts are totally void,
• but neither party can recover any money paid or
property transferred under it.
• * Possibility of performance
• If the performance of a contract is impossible
when it was entered into, the whole contract
becomes void.
• * Sufficient certainty of terms
– details of the contract must be stated (i.e. expressed)
or ascertainable.
• There must be a precise meaning to the words,
with no ambiguous clauses.
• * Prescribed form is necessary to make some
contracts valid.
• In general no particular formality is required for
the creation of a valid contract, and it may be
oral, written, part-oral, part-written, or even
implied from conduct.
• Some transactions are valid only if effected by
deed
– (e.g. a transfer of shares in a British ship) or in
writing (e.g. marine insurance contracts and
promissory notes).
• Certain other contracts, although valid, can only
be enforced at law if evidenced in writing.
• * The agreement must not be rendered void
either by some inherent defect,
– such as operative mistake.
• Certain contracts, though valid, may be liable to
be set aside by one of the parties on grounds
– such as misrepresentation or the exercise of
undue influence.
• * A misrepresentation
• an untrue statement of fact made by one party
to the other
– in the course of negotiating a contract, that induces
the other party to enter into the contract.
• * Mistake
• a misunderstanding or erroneous belief about
– a matter of fact (mistake of fact) or
– a matter of law (mistake of law).
• A mistake of law has no effect on the validity
of a contract, but
• a mistake of fact may make the contract
voidable, i.e. liable to be set aside by one of the
parties, subject to certain conditions.
• * Duress
• pressure put on a person to act in a particular way,
– e.g. where a seafarer is ordered by the master of a ship
changing articles during a voyage to sign a new crew
agreement before being discharged from the old one.
• Acts carried out under duress usually have no legal
effect.
• A contract obtained by duress is voidable at law.
• * Undue influence
– prevents someone from exercising an independent
judgement with respect to any transaction.