A legally binding agreement between two or more parties is treated as a contract. As a Quantity Surveyor, it is essential to know the key elements to create a valid contract. There are four key elements to create a valid contract. before discussing the key elements of a valid contract, will see types of contracts, and characteristics of those types.
Main types of contracts
Contracts have numerous kinds, but all these kinds can be divided into two main types.
- Simple and speciality contracts
- Bilateral and unilateral contracts
Below, we have given more detail description of the above two categories.
Simple and speciality contracts
A simple written or oral agreement between the two parties is known as a simple and speciality contract. You can decide the terms by the following:
The formation of a contract with a process is familiar as a speciality contract.
Bilateral and unilateral contracts
Bilateral contracts occur when one party (A) makes a promise, or more than one promises to the other party (B). In return, the party (B) makes a promise or promises to the party (A). It is the same as “promise in return for a promise “. There is a unilateral contract where the party (A) promises B in return for action by B. But B does not promise A to carry out the activity. It is familiar as “promise in return for action.”
Generally, to determine whether an agreement has been made between parties is one of the parties makes a contractual offer to the other party, and the same other party accepts the offer. This is the most basic requirement of foaming a valid contract, In order to fulfil this basic requirement a contract should consist four elements.
Below listed are the four essentials to form a valid contract.
Below are the 4 key elements of a valid contract
- Offer– most vital essentials to form a valid contract. It must consist of a firm and definite promise or several promises.
- Acceptance– manifestation on the part of the offeree, which he/ she unconditionally agree to the conditions/terms of the offer.
- Intention to create legal relations-‘intention to form’ a legally binding agreement or contract.
- Consideration-consideration in the contract can be mentioned as “something of value”.
Form offer and acceptance are the most important essential for making a valid contract. It should consist of a firm and definite promise or several promises.
- The party who is making the offer called offeror and,
- the party to whom is made for offer called the offeree.
You can make an offer to a particular individual, or a group, to the world at large, or the general public. But it is offered to whom who is entitled to accept.
Invitation to treat
The offer must be distinguished from the invitation to treat. The invitation to treat is not a contractual offer as it is just an invitation that one party has given to the other party. For example, the display of goods in shops, supermarkets, and self-services stores to a customer is an invitation to a consumer.
In this situation, the customer makes an offer. When he makes a strong offer to buy the goods, the shopkeeper entitled to accept or reject the offer.
Case study – Invitation to treat
In the case of “Fisher v Bell (1901)” there was a flick-knife displayed in a shop. It did not constitute an offer to sell. But it is just an invitation to the customer to make an offer. In this case, the shopkeeper is not legally bound to sell goods to the customer at the displayed price. Based on this rule, a display of products in a supermarket or self-service store is an invitation to treat. There is no contractual offer formed.
But in some times advertisement establishes an offer or invitation to treat. It depends on the intention of the advertiser.
As an example case “Carlill v Carbolic Smoke Ball Co (1983)” the manufacturer (defendant) has intended that an advertisement for the treatment of influenza, anyone who caught influenza after using the smoke ball in a specified manner, would pay 100 pounds.
The plaintiff who used the smoke ball according to the specific manner and he caught influenza. The plaintiff claimed 100 pounds from the defendant. Then the Court of Appeal decided that advertisement was an offer.
It is mentioned that the defendant intended to be legally bound by their promises as necessary action was made without further bargaining so that it has formed a contract due to the intention of the advertiser.
As well as an advertisement expressing a willingness to sell goods with the stated price is an invitation to treat.
Example case for that is “Partridge v Crittenden (1968)“. In this case, the defendant made an advertisement stating; “Bramblefinch cocks, Bramblefinch hens, 25 shillings each’. The court was held that I was not an offer but an invitation to treat.
Acceptance of an offer
The next important essential of a legitimate contract is the acceptance of an offer. You can express it as an expression by the offer, in which someone unconditionally agrees to the terms of the offer. The offer can be responded in the following three conditions;
- the response must be an unqualified assent to the terms of the offer; and
- in general, the response must be communicated to the offeror; and
- The offeree must know of the offer.
Response to an offer forms a valid acceptance if there is no discrepancy between offer and terms of the response to it. Any acceptance by the offeree with a variance to the original terms of the offer will not create a valid acceptance of the offer.
Sometimes such response will automatically terminate the offer. In the situation of a counteroffer by the original offeree to the original offeror which will be entitled to accept or reject.
As an example case of “Hyde v Wrench (1840)” A wrote to B offering to sell his farm for 1000 pounds. B replied to him, saying that he is willing to buy it 950 pounds. A rejected it.
Later B wrote A he is willing to buy it for 1000 pounds. The court was decided that there was no agreement because B’s proposal did not constitute valid acceptance of A’s offer. Moreover, due to B’s proposal to buy 950 pounds terminated the A’s original offer.
The result is A’s original offer was no longer capable of acceptance by B. so that to form valid contract the response to the offer must be unqualified assent to the terms of the offer. Generally, acceptance is legally bound within the parties when the response must communicate to the offeror.
In the case of “Entores v Miles Far East Corporation (1955)” the judge was stated that, while the offeree is trying to communicate his acceptance by telephone, the line got disconnected. As a result of that, the offeror does not hear his intended acceptance. Then there is no valid acceptance made. So communication is a very vital matter to made contractual acceptance between parties.
As well as in the case of “Tinn v Hoffman (1873)” the offeror needed acceptance by return in post. The court held that acceptance by verbal message or telegram would be effective communication if the offeror comes to know of it not later than the letter by return of post. Further acceptance is legally permissible if the response has no statement to the offeror in two cases.
- Postal Acceptance
- Dispensation with the need for communication.
Case study-Postal Acceptance
The case of “Adams v Lindsell (1818)” is an example for the postal acceptance. In this case, the letter of the acceptance was delayed two days due to the transit. Then the offeror sold the wool to a third party before acceptance arrived at him, but after it had been posted. The court held that there was a contract was formed soon after the letter of acceptance was posted.
The other requirement to make the right contract is ‘consideration’. The meaning of consideration in the contract is “something of value”. For example, a promises A to B is not supported by any action. Then B can enforce A’s obligation only if B has paid the price in return for A’s promise.
You can divide consideration into the methods mentioned below;
- Executed consideration
- Executory consideration
- and past consideration
Intention to create legal relation
This is the Last vital element to make a valid contract between offeror and offeree. It is defined as an ‘intention to form’ a legally binding agreement or contract. This is one of the most necessary elements in the formation of a valid contract.
It is due to the acquisition of legal intent involves the preparation of a party to accept the legal process of agreeing. It is the move of every contracting party that there must be a mandatory intention to enter into a legally binding contract.
Apart form above for most important elements of a valid contract, there are other essential requirements in a contract.
what are the other required requirements for contract becoming legally binding?
Under the English legal system, a contract is a legally binding agreement between the parties. To form a legal contract below prior requirements should fulfil by both parties.
- Contract. It must be made by deed.
- Must be made in writing (but not by deed)
- It must be made with evidence with writing.
- There must be an agreement between the parties.
- The parties should have an absolute and final agreement.
- The parties must intend to bind their agreement legally
- The agreement must be carefully supported.
Read our next article about FIDIC contracts.