There are 5 key elements to all contracts, this being offer, acceptance, consideration, intention to create a legally binding contract and capacity. These are set out briefly below:
Offer
An offer is an expression of willingness to contract on specified terms made with an intention to create a binding agreement. The offer may be made to an individual, group or the world at large (Carhill v Carbolic Smoke Ball Co [1893] 1 Q.B. 256).
A point often pleaded by lay defendants is that as there is no written agreement, there is no contract, that is not correct. An offer can be made orally as can acceptance, therefore there is no requirement for the contract to be in writing.
An offer should be contrasted with an invitation to treat. An invitation to treat occurs where a party may invite the other party to make an offer e.g. party A contacts party B asking what is the lowest price to hire plant machinery (e.g. a digger) for a week. Party B responds saying the lowest price would be £1,000.00 plus VAT. The response from party B is not an offer, it is a statement of the lowest price it would accept. Instead, when party A says words to the effects of ‘we agree to hire the plant machinery for £1,000.00 plus VAT’, that is the offer that party B can either accept or reject.
Acceptance
Acceptance is a final and unqualified expression of assent whether by words or conduct to the terms of the offer (Chitty on Contracts 35th Edition 4-032). The acceptance has to be communicated to the offeror unless an exception applies such as acceptance by conduct, this occurs where a party may offer to hire a vehicle and delivers the vehicle to the offeree, if the offeree accepts the hire vehicle, the offer has been accepted notwithstanding there is no communication of the acceptance.
Acceptance does not occur when the offeree states it intends to go ahead or asks for a pro forma invoice.
Consideration
Consideration is the value given for the promise, this is often money but can include other forms of detriment (including marrying someone (Shadwell v Shadwell (1860) 9 C.B. N.S. 159). Where the buyer agrees to buy a car from the seller for £10,000.00, the £10,000.00 is the consideration.
Intention
In order for a contract to be valid, there must be an intention to create legal relations. Adding words to an agreement such as ‘subject to contract’ may expressly negate an intention to create legal relations.
In the commercial context, if a party seeks to assert there is no intention to create legal relations, they bare the burden of proving the same.
Capacity
Generally speaking, parties to a contract must be aged 18 or over and be of sound mind. The starting point is the law assumes everyone has capacity. As such, the burden of proving incapacity is on the party seeking to assert the same. Incapacity includes not only mental illness but also incapacity caused by e.g. being drunk.
