Contracts are at the core of most everyday activities, from buying a newspaper to catching a bus or going to work. They form a substantial part of modern life and yet many go unnoticed, because what a contract is and how they work is, in general, taken for granted.
In basic contract law, a contract is “an agreement to do, or abstain from doing, some action”, with the intention to create a legal relationship that may be enforced by law. At face value, this means a wide variety of things may be considered a contract, from a spoken agreement to an offer of employment or the provision of a mortgage, and this is correct.
How Contracts Work
Three requirements arise from the courts' need to identify what constitutes a contract for the purposes of upholding its terms or suing for a breach. For a contract to be enforceable, it must contain: an agreement; details of a consideration or bargain; and evidence of intent to create legal relations. But what do all these mean?
An agreement is, simply, an acceptance of binding conditions. They come into existence the moment both parties agree; viewed objectively based on whether there appears to be an agreement. For example, when buying a newspaper the purchaser agrees to give the seller some money in exchange for the newspaper. The sale is then a contract for the purchase of goods.
The case of Currie v. Misa (1875) gives the standard definition of a consideration, albeit in somewhat cumbersome and dated language. In essence, a consideration is a requirement that a “promisee, in exchange for the promisor's promise, provide some benefit … or suffer some detriment”. For most cases, the benefit provided will be in the form of goods or services, while the detriment would be time or money. Returning to the newspaper sale above, the “promisee” is the purchaser of the newspaper, who suffers a “detriment” by giving money to the seller (the “promisor” in this case) in exchange for the newspaper.
Presumptions About Intention to Create Legal Relations
In English contract law there are two presumptions the court will use when deciding whether the parties to an agreement had the intention of creating legal relations. Firstly, the court will presume that any commercial contract, such as an employment contract or a newspaper sale, was made with the intention of creating legal relations. Secondly, the court will presume that there was no intention to create legal relations in the case of domestic agreements.
The presumptions are used only where there exists an agreement whose binding nature is in dispute and both may be rebutted with sufficient evidence. As with all evidence in civil cases, evidence rebutting a presumption is judged on the balance of probabilities; i.e. the presumption will be disregarded where it can be shown it is more likely than not that it is false.
Can Offers Be Conditional?
Although an offer forming the basis of any agreement must be an intention to be bound on certain terms immediately upon acceptance by the other party, it does not necessarily follow that a contract will begin immediately; or even begin at all. Contracts may contain conditional clauses that change the date the contract becomes effective, or give one party (or both) an option of ending the contract if certain conditions are, or are not, met.
However, conditional clauses have limits. In the case of employment contracts, the decision in Stubbes v. Trower Still and Keeling [1987] makes it clear that if an employment contract contains a conditional clause (such as a period of probation where the employee must reach a certain level of demonstrable skill by a certain date) then this must be made clear to the employee, or the clause will be invalid. The decision in Stubbes can be seen as an extension of the general principle in Polymer Products Ltd v. Power that individual terms in contracts must be sufficiently clear and certain for the courts to give them meaning.
At its most basic, a contract is simply a legally binding agreement between two parties and, within reason, the actual substance of the contract can be for anything, be it a magazine subscription; an employment contract; booking a wedding; etc. As long as there is an agreement to do, or not do, something, between two parties, and the agreement is made with the intention that it be legally binding, there is a high chance that a contract exists.
Zoe Kirk-Robinson - Zoë Kirk-Robinson is a freelance writer/artist specialising in legal writing, internet technology and creative writing. She holds a ...
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