Match the four elements of a contract with their definition.

Whether the contract contains many pages of details or just a few lines of text, all contracts must have the same basic elements to be legally binding and enforceable. Both verbal and written contracts must involve a mutual agreement between parties and involve only legal activities with achievable terms. Contracts that do not contain the required elements are void in court and not enforceable.

A contract must always have mutual assent to be binding. Mutual assent requires the involved parties to mutually agree on the terms of the contract. Once agreed, one party provides an offer and the other party accepts the offer under the mutually defined terms. This "offer" and "acceptance" is often referred to as the "meeting of the minds."

Enforceable contracts are only those which involve legal activities within the scope of the law. Contracts that involve or enforce illegal activities are neither binding nor enforceable in court. The contract's jurisdiction is an important aspect, as the legal parameters can change based on locality.

A binding contract must deliver one form of consideration for another form (Cornell University). The consideration, in a contract, is the object of value that is being exchange. The consideration can be tangible or intangible and varying price and size. Common forms of consideration include real estate, personal property and services.

In order for a contract to be enforceable, the parties of the contract must have the capacity, or ability, to complete their obligations as outlined within the contract. Minor children, under most circumstances, do not have the capacity to make binding contracts because of their age. The competent parties must not only be of legal age, the parties must be mentally sound when entering into the agreement.

The Statute of Frauds is designed to protect the integrity of certain contracts. Under the Statute of Frauds, contracts must be completed in writing when the agreement involves the sale or transfer of real estate, debt or obligation of another, or the sale of certain goods as outlined by the applicable Uniform Commercial Code. Contracts that cannot be completed within a one year period must also be written, under the Statute of Frauds. These written contracts must detail the contract's parties, subject matter, terms, conditions and signature of the party who is being charged for the exchange (Expert Law).

To create a legally binding commercial contract, the agreement must contain four essential elements.

They are:

• offer
• acceptance
• consideration
• the intention to create legal relations

Commercial contracts do not have to be in writing to be enforceable; however, if a breach of contract occurs, having a written document makes it easier to prove what was agreed.

What is an offer?

An offer is a pledge by a party to another promising to enter into a contract on set terms. It has to be specific, complete and capable of being accepted.

Offers can be preceded by an invitation to treat (for example, goods which are on display in a shop) or they can stand alone. However, invitations to treat are not supported by the intention to create legal relations and do not result in a contract unless followed by an offer and the other key elements of contract formation.

An offer has to be accepted to form a contract but offers are not open for acceptance indefinitely and can be revoked in a number of ways.  However, any revocation of an offer must be communicated to the offeree.

What is acceptance?

Acceptance is the unequivocal agreement to the terms of the offer without any further negotiation. A contract is formed when acceptance is communicated to the offeror.

When acceptance does not match the original offer, the offeree essentially rejects the original offer and becomes an offeror in making a counter-offer. Acceptance of a counter-offer means that the contract is formed on the terms of the counter-offer and not the original offer.

What is consideration?

Consideration is the value exchanged by each party when entering into an agreement.  For example, if you purchase an item of clothing from a store, the consideration provided is the money you pay for the piece.  If there is no consideration, then there is no contract.

In commercial agreements, courts are more likely to find consideration.

What does intention to create legal relations mean

Unless parties intend to enter into a contract, no legally binding agreement can be formed. The courts apply an objective test in determining whether such intention exists. In commercial contracts, there is a rebuttable presumption that the parties intend to bind themselves.

Are there any other elements that must be present to create legal relations?

For a contract to be valid, both parties must have the mental capacity to understand the terms of the agreement and the consequences of entering into it.  Contracts that do not have clear, comprehensive or unambiguous terms may fail for lack of certainty.  Under the doctrine of privity of contract, rights and obligations under a contract only attach to parties to that contract and only parties to a contract can enforce it or have it enforced against them

To find out more about creating or entering into a commercial contract, contact a solicitor who specialises in commercial law.

CONTRACTS: BASIC PRINCIPLES  430x

•       Contract: An agreement between two or more parties to perform or to refrain from some act now or in the future. A legally enforceable agreement.  [4301]

•     Requisites for Contract Formation (Elements) 4305

•     Agreement: One party must offer to enter into an agreement, and the other party must accept the terms of the offer

•     Consideration: Something of value received or promised, to convince a party to agree to the deal;

•     Contractual Capacity/ competent parties: Both parties must be competent to enter into the agreement;

•     Legality: The contract’s purpose must be to accomplish some goal that is legal and not against public policy;

•     Genuineness of Assent (Arguably part of agreement): The apparent consent of both parties must be genuine; and

•     Form: The agreement must be in whatever form (e.g., written, under seal, etc.) the law requires.

UNILATERAL AND BILATERAL CONTRACTS [4302]

•     Every contract involves at least two parties -- the offeror/ promisor, who makes the offer/promise to perform, and the offeree/promisee, to whom the offer/promise is made. [4303]

•     Unilateral Contract: A unilateral contract arises when an offer can be accepted only by the offeree’s performance (e.g., X offers Y $15 to mow X’s yard). 4302.08

•     Bilateral Contract: A bilateral contract arises when a promise is given in exchange for a promise in return (e.g., X promises to deliver a car to Y, and Y promises to pay X an agreed price). 4302.09

•     Express Contract: A contract in which the terms of the agreement are fully and explicitly stated orally or in writing.[4302.01]

•     Implied-in-Fact Contract: A contract formed in whole or in part by the conduct (as opposed to the words) of the parties. In order to establish an implied-in-fact contract, [4302.02]

(1)  the plaintiff must have furnished some service or property to the defendant,

(2)   the plaintiff must have reasonably expected to be paid and the defendant knew or should have known that a reasonable person in the plaintiff’s shoes would have expected to be paid for the service or property rendered by the plaintiff, and

(3)   the defendant must have had the opportunity to reject the services or property and failed to do so.

•     Quasi or Implied-in-Law Contract: A fictional contract imposed on parties by a court in the interests of fairness and justice, typically to prevent the unjust enrichment of one party at the expense of the other.[4302.03]

FORMAL AND INFORMAL CONTRACTS [4302.04/5]

•       Formal Contract: A contract that requires a special form or method of formation (creation) in order to be enforceable.

•     Contract Under Seal: A formalized writing with a special seal attached.

•     Recognizance: An acknowledgment in court by a person that he or she will perform some specified obligation or pay a certain sum if he or she fails to perform (e.g., personal recognizance bond).

•     Negotiable Instrument: A check, note, draft, or certificate of deposit -- each of which requires certain formalities (to be discussed later).

•     Letter of Credit: An agreement to pay that is contingent upon the receipt of documents (e.g., invoices and bills of lading) evidencing receipt of and title to goods shipped.

•     Informal Contract: A contract that does not require a specified form or method of formation in order to be valid.

•     The vast majority of contracts are informal (without a seal).

•       Executed Contract [4302.11]: A contract that has been completely performed by both (or all) parties. By contrast,

•     An executory contract [4302.10]is a contract that has not yet been fully performed by one or more parties.

•     Valid Contract [4302.13]: A contract satisfying all of the requisites discussed earlier -- agreement, consideration, capacity, legal purpose, assent, and form. By contrast,

•     A void contract [4302.14]is a contract having no legal force or binding effect (e.g., a contract entered into for an illegal purpose);

•     A voidable contract [4302.15] is an otherwise valid contract that may be legally avoided, cancelled, or annulled at the option of one of the parties (e.g., a contract entered into under duress or under false pretenses); and,

•     An unenforceable contract is an otherwise valid contract rendered unenforceable by some statute or law (e.g., an oral contract that, due to the passage of time, must be in writing to be enforceable).

•       The key to contract interpretation is to give effect to the intent of the parties as expressed in their agreement.

•     Intent is generally to be ascertained objectively -- by looking

at

(1)   the words used by the parties in the agreement,

(2)   the actions of the parties pursuant to the agreement, and

(3)   the circumstances surrounding the agreement

as they would be interpreted by a reasonable person -- rather than the parties’ subjective intentions (usually expressed after the fact).

•     The Plain Meaning Rule: When a contract is clear and unequivocal, a court will enforce it according to its plain terms, set forth on the face of the instrument, and there is no need for the court either to consider extrinsic evidence or to interpret the language of the contract.

RULES OF INTERPRETATION - [4321]

Know these, they show up all the time…

•       Rules of Interpretation:

       When a contract contains ambiguous or unclear terms, a court will resort to one or more of the following rules in order to determine and give effect to the parties’ intent.

•     Insofar as possible, the contract’s terms will be given a reasonable, lawful, and effective meaning.

•     The contract will be interpreted as a whole various and its various provisions will be “harmonized”  to yield consistent expression of intent.

•     Negotiated terms will be given greater consideration than standard-form, or “boiler-plate,” terms.

•     A non-technical term will be given its ordinary, commonly-accepted meaning, and a technical term will be given its technical meaning, unless the parties clearly intended something else.

•     Specific terms will prevail over general terms.

•     Handwritten terms prevail over typewritten terms, which, in turn, prevail over printed terms.

•     When the language used in a contract has more than one meaning, any ambiguity is construed against the drafting party.

•     An ambiguous contract should be interpreted in light of pertinent usages of trade in the locale and/or industry, the course of prior dealing between the parties, and the parties’ course of prior performance of the contract.

•     Express terms are given preference over course of prior performance, which is given preference over course of dealing, which is given preference over usage of trade.

•     Words are given preference over numbers or symbols.