So do you have a contract?
A contract is a legally binding promise (oral or in writing) by one party to fulfil an obligation to another party in return for consideration.
A legally binding contract has four key elements:
1. An offer.
2. Acceptance of the offer.
3. Consideration.
4. An intention by the parties to be legally bound.
Offer
An offer is a promise by one party to enter into a contract on certain terms. These terms must be sufficiently clear to be capable of acceptance, and made with an intention of being bound by acceptance. If an offer doesn’t indicate that the offeror intends to be legally bound, it could be categorised as ‘’an invitation to treat’’. The price label on an item in a shop is not an offer but an "invitation to treat". The offer is made by the customer when they present the the item at the checkout. The action of tendering money for the item is an offer to purchase and should the shop assistant accept the money in consideration for the item, this is acceptance. The actions of both parties in this case is evidence of an intention to be legally bound.
Acceptance
Acceptance must be communicated to the offeror. Acceptance can be in writing, orally or by conduct, however it must be sufficiently clear that the offeree intended to accept the offer. Acceptance of an offer is final, and to be effective in the formation of a contract it must be correspond with the terms of the offer.
Consideration
Consideration is something of value to which a party is not already entitled to and it is given in exchange for contractual promises. Consideration must have value in the eyes of the law, meaning that consideration needs to be sufficient but it does not need to be adequate. Using the example above, the money offered in payment of the item is consideration. If the money offered and accepted was significantly less than the value or stated price of the item, then this would still be good consideration since it need not be adequate but it is still of value. It is this principle that enables companies and properties to be bought for as little as £1.00.
Intention to be legally bound
When assessing whether a party had an intention to create legal relations the Court considers the objective conduct of the parties as a whole. It is usually readily apparent from the conduct of the parties. In commercial situations there is a presumed intent to create legal relations unless rebutted with evidence by the contracting party.
In any 'contract' dispute, you should always check whether in fact a contract came in to existence. In November 2023, we were instructed to assist a client who was the subject of a claim for almost £40,000 under a personal guarantee. The personal guarantee was stipulated to be a contract as opposed to a deed (more on this in another post) but the consideration was said to be "love and affection". Seemingly unbeknown to the opposing solicitor, this was not good consideration since you cannot legislate for what may or may not be happening in someone's mind. The claim was successfully defended.