Law of Contract

Revision Notes
The law of contract underpins the relationships and transactions between stakeholders. A
contract is a legally binding agreement between two or more parties which is enforceable by
law.
Essential Elements of a valid contract
1.
2.
3.
4.
5.
6.
7.
8.

Offer
Acceptance
Consideration
Intention to contract
Capacity to contract
Consent to contract
Legality of form
Legality of purpose

1. Offer This is a proposal by one party to give or do something. When it is accepted it is

said to be an agreement. An offer may be oral, written or implied.
2. Acceptance The other party must accept the offer as it stands. Any changes to the offer
are regarded as a counter-offer which can again be accepted or rejected by the first party.
3. Consideration This refers to whatever is exchanged between the parties. Each party
must give something of value to the other party. What each offers the other is called
consideration. For example, you give the shopkeeper money and the shopkeeper gives you
the bar of chocolate.
4. Intention to contract This means each party to the contract must intend it to be legally
binding. They must be aware that they are entering a legal agreement.
5. Capacity to contract This is the power or ability a person has to enter into a contract.
The following parties do not have capacity to enter into a contract:
Persons under 18 years of age
Persons under the influence of alcohol or illegal drugs
Persons of unsound mind
6. Consent to contract A person must enter into a contract of their own free will. They
must not enter into a contract under undue influence or duress.
7. Legality of form Even though a contract can be oral, written or implied, some contracts
must be written to be valid. For example, insurance policies or for the sale of land.

8. Legality of purpose This means that legally binding contracts can only be for legal
reasons, i.e. the purpose of the contract must be a legal one. For example, a judge will not
award compensation to a bank robber whose getaway driver did not show up as agreed.
Termination of a contract
A contract may come to an end when all of the obligations and terms which arose under that
contract have been fulfilled or are no longer required. A contract may be terminated in the
four following ways:
1.
2.
3.
4.

Performance
Agreement
Frustration
Breach

1. Performance This is the most common way a contract ends. It happens when each party
does what they were contracted to do and the contract is no longer required.
2. Agreement Both parties agree to end the contract before it has been fulfilled and are no
longer under any legal obligation.
3. Frustration Some unforeseen event takes place that makes it is deemed impossible for
the contract to be carried out. For example, death of one party.
4. Breach This is when a condition has been broken by one of the parties. For example, you
have arranged to have your birthday cake delivered on the day of your party but is not
delivered until the next day.
You may seek a remedy for breach of contract which include:
1. Damages
2. Rescind the contract
3. Seek Specific Performance
1. Damages Compensation is awarded to the injured party in court for the loss suffered
as a result of the broken contract.
2. Rescind the contract A judge may decide to place both parties back in the situation
before the contract was agreed by cancelling the original contract. The purpose of this is
to free both parties from the contract and any legal obligation.
3. Seek Specific Performance This means asking a judge in court to instruct the other
party to fulfil the contract as agreed.