Five Essentials Of A Binding Contract

A binding contract is an agreement between two or more parties, giving rise to rights and obligations are recognized and enforceable by law. The five essentials of a valid contract are capacity, offer, acceptance, intention to form legal relations and consideration.

Capacity is the first element to form a legally binding contract. The three factors are minority, intoxication and insanity. The three factors have to be present in order the person to enter into a contract. The contract will be unenforceable or is said to be void against the person if any of the three factors are absent. Firstly, the minors are below the age of 18. The law states that contracts entered by minors are not binding against them because they may not fully appreciate

It is an intimation of willingness by an offeror, who is the person offering the contract to enter into a legally binding contract. Its terms either expressly or impliedly must indicate that it is to be binding on the offeror as soon as it has been accepted by the offeree therefore the offeror is willing to do something as soon as offeree accepts it. Offer can be made to a specific person, a group of persons or the world at large can be communicated in writing, orally or by conduct. The unilateral contract can arise if the advertisement deemed to be an offer to the world and capable of being accepted by anyone who meets its stated conditions. In reference to Carlil v Carbolic Smoke Ball (1892), the court held that the company made a breach of contract for not paying Carlil after what has promised by the company. Although an offer can be made to the world at large, it is not an invitation to treat. Invitation to treat is an invitation to commence negotiation. In addition, it is inviting someone to make an offer. Examples of invitation to treats are advertisement, self-service displays in shops, auctions and tenders. Similarly in Alfred’s case, the written contract that the shop advertises on the web is merely an invitation to treat and therefore the contract it is not

It must be positive and not passive meaning that the party accepting the contract must actively accept an offer and he or she cannot accept the offer by doing nothing. In Felthouse v Bindley (1862), the court held that there was no acceptance because there was no communication between F and B. It shows that silence does not fulfill the communication requirements of acceptance.

Lastly, acceptance must be unqualified. In other words, an introduction of new terms leads to counter offer and as a result there is a revocation to the original offer. Referring to Neale v Merrett (1930), the court held that there was no acceptance because the normal terms are payable as a single sum but the plaintiff paid $80 and offered to pay the remaining by installment.

The final essential of a binding contract is intention to form legal relation. It is one of the necessary elements to form a binding contract. There are two types of agreements to classify agreements to objectively assess legal relation that is commercial agreement and social & domestic