A legally binding agreement.

Formation of a Contract Blockbusters Quiz

A contract refers to an agreement made by two or more parties and which can be carried out according to specific requirements. All parties will voluntarily assume liabilities with regard to each other. It is a legally binding agreement.

There are four essentials of a contract:

  • Offer
  • Acceptance
  • Consideration
  • Intention

The offer must be made and this offer must be unconditionally accepted.

The offer must be communicated, it would not be possible to accept an offer if there was no knowledge of the offer.

The acceptance must reflect agreement to the terms of the offer, this agreement can be in words or by conduct but must be communicated to the offeror. If an offer is accepted by post the offer is regarded as being accepted at the time the acceptance is posted. Acceptance cannot be made through silence.

Consideration refers to the need for there to be mutual benefits for the parties to a contract. The traditional definition of consideration in Currie v Misa (1875) states 'a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other'

Intention could be described as the difference between moral duty and legal duty and for an agreement to form a contract there must be an intention to create legal relations. If a statement is to become an offer the statement must be made intending that, on acceptance, it will be binding and that if necessary it will be enforced in the courts or through arbitration. Agreements between friends may consist of an offer and an acceptance and a consideration but at the end of the day there is not usually an intention to take legal recourse if there is a breach of the agreement.

Contracts are usually in writing for the sake of clarity and especially for commercial contracts, but can be made orally or by action.

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