What you need to form a legal contract

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It may not always seem obvious but everyday life is full of contracts. Whether you are buying a train ticket, a chocolate bar or simply going to work, contracts underpin all these transactions, and in order for all these transactions to be valid they must all share five key elements.

The five elements required to form a contract:

1. Offer

An offer can take many forms. If you are looking to buy a house and gave the estate agent the price you are willing to pay for the property, then this will be an offer.

If you pick up a chocolate bar from the shop and take it to the person working at the till, you will be making an offer to buy the chocolate bar. The courts have made it clear that where a shop displays its goods to its customers this is not to be taken as the shop making an offer to its customers.

2. Acceptance

If an offer is accepted, without any changes to it, then this will usually constitute acceptance.

If changes are made to the original offer, for example a buyer offers to buy a car for £5,000 but the seller responds by saying they will only sell the car if they get £5,000 and a bicycle, then acceptance has not taken place. In fact the seller will have made a counter offer, which the buyer has the option of accepting.

3. Consideration

The requirement for consideration is usually fulfilled by one party paying money and, in exchange, the other party supplying goods or services. In this respect, consideration can be thought of as an obligation for both parties to a contract to fulfil.

If you were to offer to mow your neighbour’s lawn for free, then consideration is only coming from one party and this element would not be satisfied. If you later decided you did not want to mow your neighbour’s lawn, then your neighbour could not make you as there is no contract.

4. Intention to create legal relations

If a legal contract is to be created both parties must have intended to create a legal arrangement. Where the parties are clearly joking, there is no intention to create legal relations and there will be no contract.

The starting position for agreements between family members is that the parties did not have any intention to create legal relations. If the parties are serious about forming a contract, the best way to prove an intention to create legal relations is to have the contract properly recorded in a signed written document.

5. Certainty

If the terms of your proposed contract are not sufficiently certain then it may not be possible for you to enforce the contract at all.

There are situations where a court is able to imply a term into a contract, for example, if no delivery time is specified, then a court could well require delivery to take place within a “reasonable” time; and what is considered reasonable will depend on the particular circumstances at the time. However, it is far better to clearly set out your terms at the beginning of any contract, rather than relying on a court judgment which can be difficult to predict, expensive and time consuming.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.