Formation
There are seven elements necessary for a legal contract. These divide into two
classes. First, there are five elements that form a binding contract:
(1)
Agreement. The parties must agree on the terms.
(2)
Consideration. Each party must promise something.
(3)
Intention to create legal relations. Parties must intend that their
agreement has legal effect as distinct from being a mere understanding or
social arrangement.
(4)
Formalities. Any formalities for making the contract must have been
observed. There is no general requirement at common law for formalities that
apply to contracts. Consequently, any formality to be observed for a particular
type of contract must be laid down in statute.
(5)
Capacity. Each party to the contract must have legal capacity to make
the contract.
Second, there are two elements, consent and lack of both voidness and
illegality, which are necessary so that an otherwise binding contract cannot be
set aside:
(1)
Consent. Parties consent to the contract when they make the agreement.
This consent must be given knowingly and willingly in the eyes of the law.
Therefore a contact can be set aside if the consent that is given is flawed
because when it is given there exists (i) a lack of proper knowledge caused by
misrepresentation or mistake, or (ii) a lack of proper willingness induced by
duress, undue influence or unconscionable conduct.
(2)
Lack of voidness and illegality. There must not be common law or
statutory provisions that make the contract void or illegal.
These vitiating factors may, according to conventional analysis, result in the
contract being either void or voidable. Where the lack of consent renders the
contract merely voidable a party must bring proceedings (for example for
rescission) to avoid and therefore nullify the contract.
Definition
Once a contract is made it is necessary to define it, that is, to identify its
components. There are, in fact, two possible contracts to consider. There is
the main contract, but there is also the possibility of a collateral contract that
operates in addition to the main contract.
A contract is identified or defined by the parties and the terms:
(1)
Parties. Parties to the contract are those who agree to it. There is a basic
principle about parties called the doctrine of privity. It provides as a general
rule, and subject to exceptions,
that only those who are party to the contract
can sue and be sued on it.
While the obvious parties to a contract are those
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