Law of Contract & Agency

A contract is a legally binding agreement between two or more parties. For a contract to be valid and enforceable, the law requires several essential elements to be present at the same time. If any essential element is missing, the agreement may be void, voidable or unenforceable.

The essential elements are: (1) Offer — a definite promise to be bound on specific terms; (2) Acceptance — unqualified agreement to all the terms of the offer; (3) Consideration — something of value exchanged by each party; (4) Intention to create legal relations — the parties must intend the agreement to be legally binding; (5) Capacity — the parties must be legally capable of contracting; (6) Consensus ad idem — genuine agreement, a 'meeting of the minds' on the same thing in the same sense; and (7) Legality of object — the purpose of the contract must be lawful.

Offer and acceptance together produce agreement. An offer must be distinguished from an invitation to treat (such as goods displayed in a shop or an advertisement), which merely invites others to make offers. Acceptance must be communicated to the offeror and must match the offer exactly — a counter-offer rejects and destroys the original offer.

Consideration is the price for which the promise of the other party is bought. It must be sufficient but need not be adequate — the courts do not measure whether the bargain is fair, only that each side gives something of value. Past consideration (something already done before the promise) is generally not valid consideration.

Capacity concerns whether a party is legally able to contract. Minors (persons below the age of majority), persons of unsound mind and intoxicated persons may have limited capacity. Contracts with minors are generally not binding on the minor except for necessaries and certain beneficial contracts.

Intention to create legal relations is presumed in commercial and business agreements (such as insurance) but is generally presumed absent in purely social or domestic arrangements. Legality of object means the contract's purpose must not be illegal or contrary to public policy; a contract to do something unlawful is void and unenforceable.