1 Assignment Question No. 1

ESSENTIALS OF A LEGAL CONTRACT

The law of contract is part of the common law. It has not been codified into a written Act of

Parliament in any part of Australia so far. It is interesting to note that contract law has, in

fact, been codified and enacted as the Contract Act in India. However, the Commonwealth

Parliament and each of the State and Territory Parliaments have passed laws modifying the

basic common law. Examples of Acts passed are the Commonwealth Trade Practices law and

various State Acts such as the Sale of Goods Act, Fair Trading Act and consumer protection

Acts.

A contract is basically an agreement. There are six essentials to the formation of a valid

contract. These are:

1. Intention to create legal relations.

2. Offer and acceptance.

3. Consideration.

4. Legal capacity.

5. Consent.

6. Legality of objects.

We shall take a brief look at each of these.

Intention to create legal relations

There can be no contract unless the parties intend to create legal relations. Domestic

arrangements, such as who will do the washing- up etc, are excluded because the parties have

no intention of creating legal relations.

Offer and acceptance

This means that one party must make an offer and the other party must accept that offer.

There are some interesting things to note here. It has been decided that a supermarket is not

making an offer by displaying its goods. The customer, in fact, makes the offer to the

supermarket at the check-out. An offer will lapse if you make a counter- offer. However, a

mere enquiry as to whether the other party would accept different terms will not cause the

original offer to lapse. Another interesting fact is that a postal offer is accepted once you post

the letter of acceptance. In such a case, a valid contract will be formed even before the other

party knows that you have accepted his offer! Often these days, when you buy a shrink-

wrapped product, you will find a notice on the outside of the packet stating that breaking the

shrink-wrap constitutes acceptance of the seller's offer and all the conditions that go with it.

The terms of a contract must be communicated to a person before he accepts them. After the

contract has been made, one party cannot unilaterally impose additional terms. For instance,

if your company runs a car-park and you do not want to accept liability for damage to

vehicles parked on your yard, you must tell the motorist the conditions of parking before he

parks his car and not later, after there has been an accident.