Home | Law | Formation

 

General principles of contract law

Consumer topics

Formation

AgreementConsiderationIntentionCapacityFormalities

Agreement

The first requirement for a valid contract is an agreement, which normally consists of an 'offer' and an 'acceptance' (although the parties may not articulate their arrangement in these terms) and involves a 'meeting of the minds' - or consensus - between two or more parties. Complex rules exist to determine when an offer and acceptance are valid.

The be effective an agreement must also be certain in all material respects. Thus, an agreement which is 'vague or ambiguous', incomplete or constitutes a mere 'agreement to agree' will not be enforceable.

 

Consideration

Consideration is the price that is asked by the promissor in exchange for their promise and is an essential requirement in Australia before a contract will be binding (save for agreements made under seal). Consequently, gratuitous promises are generally not enforceable.

Consideration is a complex requirement containing many rules and qualifications. In addition, the doctrine of promissory estoppel now operates to permit the enforcement of agreements even absent the existence of valid consideration.

 

Intention to Create Legal Relations

For a contract to exist the parties to an agreement must intend to create legal relations. Usually, the presence of consideration will provide evidence of this, but not always, so that this requirement must be separately proved in each case. The onus is on the party seeking to prove the contract to demonstrate intention and the nature of the relationship between the parties, while relevant, no longer carries with it any presumption about the contractual intention of the parties involved.

 

Capacity

There are certain persons and classes of persons that lack the capacity to enter into a contract with the consequence (normally) that resulting contracts will not be enforceable against them.  Lack of capacity now often stems form a fear of vulnerability to exploitation. This area has become more complex as a result of statutory developments at a state level (calls for national law reform have not yet met with success) which result in a variety of different rules.

 

Formalities

In most cases there is no requirement for a contract to comply with any formalities. However, statute does impose such a requirement in a limited range of contracts - most commonly, those relating to the sale or disposition of land or guarantees.

`