The Info List - Contract

--- Advertisement ---

(i) (i) (i) (i)

A CONTRACT is a voluntary arrangement between two or more parties that is enforceable by law as a binding legal agreement. Contract
is a branch of the law of obligations in jurisdictions of the civil law tradition. Contract
law concerns the rights and duties that arise from agreements.

A contract arises when the parties agree that there is an agreement. Formation of a contract generally requires an offer, acceptance , consideration , and a mutual intent to be bound . Each party to a contract must have capacity to enter the agreement. Minors, intoxicated persons, and those under a mental affliction may have insufficient capacity to enter a contract. Some types of contracts may require formalities , such as a memorialization in writing.


* 1 Formation

* 1.1 Offer and acceptance

* 1.1.1 Invitation to treat

* 1.2 Intention to be legally bound * 1.3 Consideration

* 2 Capacity * 3 Formalities and writing requirements for some contracts

* 4 Contract
terms: construction and interpretation

* 4.1 Uncertainty, incompleteness and severance * 4.2 Classification of terms * 4.3 Representations versus warranties * 4.4 Standard terms and contracts of adhesion

* 4.5 Implied terms

* 4.5.1 Terms implied in fact * 4.5.2 Terms implied in law * 4.5.3 Terms implied by custom

* 5 Third parties * 6 Performance

* 7 Defenses

* 7.1 Misrepresentation * 7.2 Mistake * 7.3 Duress and undue influence * 7.4 Unconscionable dealing * 7.5 Illegal contracts

* 7.6 Remedies for defendant on defenses

* 7.6.1 Setting aside the contract

* 8 Disputes

* 8.1 Procedure

* 8.1.1 Arbitration

* United States
United States

* 8.1.2 Choice of law * 8.1.3 Choice of forum

* 8.2 Remedies

* 8.2.1 Damages * 8.2.2 Specific performance

* 9 History * 10 Commercial use * 11 Contract theory * 12 Gallery

* 13 See also

* 13.1 By country

* 14 Notes * 15 References * 16 External links


At common law, the elements of a contract are offer, acceptance, intention to create legal relations, and consideration.

Not all agreements are necessarily contractual, as the parties generally must be deemed to have an intention to be legally bound . A so-called gentlemen\'s agreement is one which is not intended to be legally enforceable, and which is "binding in honour only".


Main articles: Offer and acceptance and Meeting of the minds

In order for a contract to be formed, the parties must reach mutual assent (also called a meeting of the minds ). This is typically reached through offer and an acceptance which does not vary the offer's terms, which is known as the "mirror image rule ". An offer is a definite statement of the offeror's willingness to be bound should certain conditions be met. If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a rejection of the original offer. The Uniform Commercial Code
Uniform Commercial Code
disposes of the mirror image rule in §2-207, although the UCC only governs transactions in goods in the USA. As a court cannot read minds, the intent of the parties is interpreted objectively from the perspective of a reasonable person , as determined in the early English case of Smith v Hughes . It is important to note that where an offer specifies a particular mode of acceptance, only an acceptance communicated via that method will be valid.

Contracts may be bilateral or unilateral . A bilateral contract is an agreement in which each of the parties to the contract makes a promise or set of promises to each other. For example, in a contract for the sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller's promise to deliver title to the property. These common contracts take place in the daily flow of commerce transactions, and in cases with sophisticated or expensive precedent requirements, which are requirements that must be met for the contract to be fulfilled.

Less common are unilateral contracts in which one party makes a promise, but the other side does not promise anything. In these cases, those accepting the offer are not required to communicate their acceptance to the offeror. In a reward contract, for example, a person who has lost a dog could promise a reward if the dog is found, through publication or orally. The payment could be additionally conditioned on the dog being returned alive. Those who learn of the reward are not required to search for the dog, but if someone finds the dog and delivers it, the promisor is required to pay. In the similar case of advertisements of deals or bargains, a general rule is that these are not contractual offers but merely an "invitation to treat" (or bargain), but the applicability of this rule is disputed and contains various exceptions. The High Court
of Australia
stated that the term unilateral contract is "unscientific and misleading".

In certain circumstances, an implied contract may be created. A contract is implied in fact if the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, John Smith, a former lawyer may implicitly enter a contract by visiting a doctor and being examined; if the patient refuses to pay after being examined, the patient has breached a contract implied in fact. A contract which is implied in law is also called a quasi-contract , because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. Quantum meruit claims are an example.

Invitation To Treat

Main article: Invitation to treat

Where something is advertised in a newspaper or on a poster, this will not normally constitute an offer but will instead be an invitation to treat , an indication that one or both parties are prepared to negotiate a deal. The Carbolic Smoke Ball offer

An exception arises if the advertisement makes a unilateral promise, such as the offer of a reward, as in the famous case of Carlill v. Carbolic Smoke Ball Company , decided in nineteenth-century England
. Carbolic, a medical firm, advertised a smoke ball marketed as a wonder drug that would, according to the instructions, protect users from catching the flu . If it did not work, buyers would receive £ 100 and the company said that they had deposited £1,000 in the bank to show their good faith. When sued, Carbolic argued the advert was not to be taken as a serious, legally binding offer ; instead it was "a mere puff", or gimmick . But the court of appeal held that it would appear to a reasonable man that Carbolic had made a serious offer, and determined that the reward was a contractual promise.

Although an invitation to treat cannot be accepted, it should not be ignored, for it may nevertheless affect the offer. For instance, where an offer is made in response to an invitation to treat, the offer may incorporate the terms of the invitation to treat (unless the offer expressly incorporates different terms). If, as in the Boots case, the offer is made by an action without any negotiations (such as presenting goods to a cashier), the offer will be presumed to be on the terms of the invitation to treat.

Auctions are governed by the Sale of Goods Act 1979 (as amended), where 57(2) provides: “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner. Until the announcement is made any bidder may retract his bid”.


Main article: Intention to be legally bound

In commercial agreements it is presumed that parties intend to be legally bound unless the parties expressly state the opposite as in a heads of agreement document. For example, in Rose & Frank Co v JR Crompton and typically the thing of value is goods, money, or an act. Forbearance to act, such as an adult promising to refrain from smoking, is enforceable ONLY if one is thereby surrendering a legal right.

In Dunlop v. Selfridge Lord Dunedin adopted Pollack's metaphor of purchase and sale to explain consideration. He called consideration 'the price for which the promise of the other is bought

In colonial times, the concept of consideration was exported to many common law countries, but it is unknown in Scotland and in civil law jurisdictions. Roman law-based systems neither require nor recognise consideration, and some commentators have suggested that consideration be abandoned, and estoppel be used to replace it as a basis for contracts. However, legislation , rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice
Denning famously stated that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind." In the United States, the emphasis has shifted to the process of bargaining as exemplified by Hamer v. Sidway (1891).

Courts will typically not weigh the "adequacy" of consideration provided the consideration is determined to be "sufficient", with sufficiency defined as meeting the test of law, whereas "adequacy" is the subjective fairness or equivalence. For instance, agreeing to sell a car for a penny may constitute a binding contract (although if the transaction is an attempt to avoid tax, it will be treated by the tax authority as though a market price had been paid). Parties may do this for tax purposes, attempting to disguise gift transactions as contracts. This is known as the peppercorn rule, but in some jurisdictions, the penny may constitute legally insufficient nominal consideration. An exception to the rule of adequacy is money, whereby a debt must always be paid in full for "accord and satisfaction ".

However, consideration must be given as part of entering the contract, not prior as in past consideration. For example, in the early English case of Eastwood v. Kenyon , the guardian of a young girl took out a loan to educate her. After she was married, her husband promised to pay the debt but the loan was determined to be past consideration. The insufficiency of past consideration is related to the preexisting duty rule. In the early English case of Stilk v. Myrick , a captain promised to divide the wages of two deserters among the remaining crew if they agreed to sail home short-handed; however, this promise was found unenforceable as the crew were already contracted to sail the ship. The preexisting duty rule also extends to general legal duties; for example, a promise to refrain from committing a tort or crime is not sufficient.


Main article: Capacity (law)
Capacity (law)

Sometimes the capacity of either natural or artificial persons to either enforce contracts, or have contracts enforced against them is restricted. For instance, very small children may not be held to bargains they have made, on the assumption that they lack the maturity to understand what they are doing; errant employees or directors may be prevented from contracting for their company, because they have acted ultra vires (beyond their power). Another example might be people who are mentally incapacitated, either by disability or drunkenness.

Each contractual party must be a "competent person" having legal capacity. The parties may be natural persons ("individuals") or juristic persons ("corporations "). An agreement is formed when an "offer" is accepted. The parties must have an intention to be legally bound ; and to be valid, the agreement must have both proper "form" and a lawful object. In England
(and in jurisdictions using English contract principles), the parties must also exchange "consideration " to create a "mutuality of obligation," as in Simpkins v Pays .

In the United States, persons under 18 are typically minor and their contracts are considered voidable ; however, if the minor voids the contract, benefits received by the minor must be returned. The minor can enforce breaches of contract by an adult while the adult's enforcement may be more limited under the bargain principle. Promissory estoppel or unjust enrichment may be available, but generally are not.


Main article: Statute of frauds
Statute of frauds

A contract is often evidenced in writing or by deed , the general rule is that a person who signs a contractual document will be bound by the terms in that document, this rule is referred to as the rule in L'Estrange v Graucob. This rule is approved by the High Court
of Australia
in Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd. But a valid contract may (with some exceptions) be made orally or even by conduct. Remedies for breach of contract include damages (monetary compensation for loss) and, for serious breaches only, repudiation (i.e. cancellation). The equitable remedy of specific performance , enforceable through an injunction , may be available if damages are insufficient.

Typically, contracts are oral or written, but written contracts have typically been preferred in common law legal systems; in 1677 England passed the Statute of Frauds
Statute of Frauds
which influenced similar statute of frauds laws in the United States
United States
and other countries such as Australia. In general, the Uniform Commercial Code
Uniform Commercial Code
as adopted in the United States
United States
requires a written contract for tangible product sales in excess of $500, and real estate contracts are required to be written. If the contract is not required by law to be written, an oral contract is valid and therefore legally binding. The United Kingdom has since replaced the original Statute
of Frauds, but written contracts are still required for various circumstances such as land (through the Law of Property Act 1925 ).

An oral contract may also be called a parol contract or a verbal contract, with "verbal" meaning "spoken" rather than "in words", an established usage in British English with regards to contracts and agreements, and common although somewhat deprecated as "loose" in American English
American English

If a contract is in a written form, and somebody signs it, then the signer is typically bound by its terms regardless of whether they have actually read it provided the document is contractual in nature. However, affirmative defenses such as duress or unconscionability may enable the signer to avoid the obligation. Further, reasonable notice of a contract's terms must be given to the other party prior to their entry into the contract.

An unwritten, unspoken contract, also known as "a contract implied by the acts of the parties", which can be either an implied-in-fact contract or implied-in-law contract , may also be legally binding. Implied-in-fact contracts are real contracts under which the parties receive the "benefit of the bargain". However, contracts implied in law are also known as quasi-contracts, and the remedy is quantum meruit , the fair market value of goods or services rendered.


Main article: Contractual term

A contractual term is "an provision forming part of a contract". Each term gives rise to a contractual obligation, breach of which can give rise to litigation