Formation of Contract

Formation of Contract

1. Intention to Create Legal Relations

   • Parties must intend for their agreement to have legal effect
     • Commercial Agreements: Law believes that parties intend to treat the agreement as legally binding
       • Social and Domestic Agreements: Law presumes that parties to do not intend to create legal relations unless there is a business element to it

2. Consideration

   • A person will not be required by the law to fulfill a promise he has made unless he has obtained (or has been promised) something in return
     • Consideration must have some economic value
       • Consideration must be sufficient but need not be adequate
         • Performance of existing obligation cannot be consideration for a further promise
           • Making part payment of a debt cannot be consideration for a promise to forgo the balance
             • Consideration must not be past

3. Offer and Acceptance

   • Offer: Statement made by one party of his willingness to enter into a contract on certain stated terms
     • Must be an offer made by one party and accepted by the other party
       • Invitation to treat: merely invites others to negotiate or make offers which may or may not be accepted
         • Acceptance: offeree unconditionally agrees to the offer without changing the terms of the offer
           • Acceptance by Silence
           • Acceptance by Reason of Past Conduct
     • Termination of Offer
       • Revocation by Offeror
         • Rejection by Offeree
           • Rejection by Counter-Offer
             • Lapse of Offer

4. Privity of Contract

   • A person who is not a party to the contract cannot sue or be sued under the contract
     • Exception: Contracts (Rights of Third Parties) Act

5. Formalities

   • No requirement that a contact must be in writing
     • Can be made orally or by conduct
       • Must be in writing: Contracts for the sale of land and Guarantees