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The Law of Contract

Unit 1

What is a Contract?
A contract is a legally binding agreement
between two or more people that is
enforceable by law
All contracts have several elements in
common

Elements of a Contract

1.
2.
3.
4.
5.
6.
7.

Agreement
Intention
Consideration
Capacity
Consent
Legality of form
Legality of purpose

1. Agreement
Agreement occurs when an offer has been
accepted
Both must be clear, complete and unconditional
They can be in writing, e.g. purchase of land or
property
They can be oral, e.g. at an auction
They can be implied by conduct, e.g. at a
checkout

Termination of an Offer

An offer is terminated if there is:


A counter offer
A rejection of the offer
A revocation (the person making the offer
backs out)

Invitation to Treat
Advertisements, price tags or shop displays
are not legal offers, they are an invitation to
treat
If a price is wrong it can be corrected
The item does not have to be sold at the
mistaken price

2. Intention
In order for a contract to take place there
must be a willingness and knowledge on both
sides that they are entering into a contract
Example: two people arrange to go out for
dinner. If one doesnt turn up, can the other
one sue?
Answer: No, there was no intention
to form a contract

3. Consideration
What one party gives to another
There must be some sort of exchange
It need not reflect the full monetary value of
the item, but it must have some measurable
value
Example: Mary buys a car from Tom for
14,000
Mary gets the car and Tom gets the money

4. Capacity
Persons entering into a contract must have
the legal ability to do so
Exceptions:

Under 18s
Persons under the influence of drugs or alcohol
Bankruptcy
Company director who is acting ultra vires
Diplomat can claim diplomatic immunity

5. Consent
The contract must be made voluntarily
It must not be entered into under duress
Both parties must agree to what is in the
contract

6. Legality of form
This refers to the manner in which the
contract is drawn up, e.g. oral, in writing or
implied by conduct
Certain contracts must be in writing, e.g.
sale of property, insurance policy

7. Legality of purpose
The contract must not break any laws
Legally binding contracts must be for legal
transactions
Agreements to commit a crime will not be
upheld in court

Recap

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