Do you know at which point you’ve entered into a contract? There are six elements that need to be satisfied:
- Offer: an offer must be made to another party, meaning the rights and obligations of the parties are clearly set out. Essentially, what’s the agreement?
- Acceptance: the Offer has to be accepted by the other party, whether that’s by verbal acceptance, by conduct or by signing a document. If the other party presents an alternative agreement, that’s a ‘counteroffer’ which can also be accepted.
- Intention to create legal relations: the parties to the proposed contract must intend that the arrangement is legally binding and enforceable on the parties. Can the arrangement be enforced? Yes, then you likely have an intention to create legal relations.
- Capacity: all parties need to have the capacity to enter into a contract. For example, a minor won’t have the capacity to enter into a loan agreement.
- Consideration: the party making the Offer has to receive some form of ‘consideration’ in return from the accepting party. This doesn’t have to be money, but it just has to be agreed by both parties.
- Legality: the terms of the agreement need to be lawful for the contract to be enforceable.
When all six elements are satisfied, you’ve entered into a contract. A contract doesn’t necessarily have to be documented in writing, however it’s a good way to ensure that there are no misunderstandings between the parties about what they’ve agreed on and what their respective rights and obligations are.
Sometimes these elements won’t appear in a step by step manner. Sometimes the offer, intention and legality are rolled into one and by your conduct, you’ve accepted.
If you need assistance with a contact, please contact our business team on 07 3224 0265
