contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it meets the requirements and approval of the law. A contract typically involves the exchange of goods, service, money, or promise of any of those. “Breach of contract”, means that the law will have to award the injured party either access to legal remedies such as damages or cancellation

In Anglo American common law the formation of a contract generally requires an offer acceptance and consideration, and a mutual intent to be bound. Each party must be those who are binding by the contract. Although most oral contracts are binding, some types of contracts may require formalities such as being in writing or by deed

In the civil law tradition, contract law is a branch of the law of the obligation.



An offer is a promise to enter into a contract on certain terms. It must be specific, complete, capable of acceptance, and intended to be bound by acceptance. It can be express or implied by conduct.


Consideration essentially means that a person cannot enforce a promise unless he has given or promised something in return. A contract without consideration will only be enforceable if made by deed.

Intention to create legal relations

The parties must intend to create a legally binding agreement, else there is no contract. This is presumed in commercial dealings but rebuttable with clear evidence to the contrary such as express wording not to be bound. The phrase “subject to contract” can assist with this but is not conclusive.

Heads of terms, a letter of intent or a memorandum of understanding are often preliminary documents used to prevent such an intention arising, although morally they may have binding effect.


In addition to the four elements above, contracting parties must have the capacity to be bound. For example, where a party is aware that the other is of unsound mind or drunk so that he is incapable of understanding the nature of the transaction, the contract will be voidable at the option of the other person. There are also special rules for minors.

An offer must be accepted to create a contract. It must be final and unqualified with no variation to the proposed terms. It must be communicated by the accepting party to the offeror or, in some cases, conduct will constitute acceptance (for example, where goods are delivered and payment taken).


Where an offeree purports to accept an offer but raises new terms, this is not acceptance, but a counter-offer. This is effectively a rejection of the original offer (meaning no contract exists) and the making of a new offer which, if accepted, will form the contractual terms.

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