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A contract is a legally binding document between that defines and governs the rights and duties of the parties to an agreement.[1]
A contract is legally enforceable because it meets the requirements and approval of the law. A contract typically involves the exchange of goods, service, money, or promise of any of those.
"Breach of contract", means that the law will have to award the injured party either the access to legal remedies such as damages or cancellation.[2]
In the Anglo-American common law, formation of a contract generally requires an offer, acceptance, consideration, and mutual intent to be bound.
Each party must be those who are binding by the contract.[3] Although most oral contracts are binding, some types of contracts may require formalities such as being in writing or by deed.[4]
In the civil law tradition, contract law is a branch of the law of obligations.[5]
Each country recognised by private international law has its own national system of law to govern contracts.
Although systems of contract law might have similarities, they may contain significant differences
. Accordingly, many contracts contain a choice of law clause and a jurisdiction clause.
These provisions set the laws of the country which will govern the contract, and the country or other forum in which disputes will be resolved, respectively.
Failing express agreement on such matters in the contract itself, countries have rules to determine the law governing the contract and the jurisdiction for disputes.
For example, European Member States apply Article 4 of the Rome I Regulation to decide the law governing the contract, and the Brussels I Regulation to decide jurisdiction.
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formation
At common law, the elements of a contract are;
offer,
acceptance,
intention to create legal relations,
consideration,
and legality of both form and content.
Not all agreements are necessarily contractual, as the parties generally must be deemed to have an intention to be legally bound.
A so-called gentlemen's agreement is one which is not intended to be legally enforceable, and "binding in honour only".[
Offer and acceptance[edit]
In order for a contract to be formed, the parties must reach mutual assent (also called a meeting of the minds).
This is typically reached through offer and an acceptance which does not vary the offer's terms, which is known as the "mirror image rule".
An offer is a definite statement of the offeror's willingness to be bound should certain conditions be met.[
] If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a rejection of the original offer.
The Uniform Commercial Code disposes of the mirror image rule in §2-207, although the UCC only governs transactions in goods in the USA.
As a court cannot read minds, the intent of the parties is interpreted objectively from the perspective of a reasonable person,[10] as determined in the early English case of Smith v Hughes [1871]
. It is important to note that where an offer specifies a particular mode of acceptance, only an acceptance communicated via that method will be valid.[11]
Contracts may be bilateral or unilateral.
A bilateral contract is an agreement in which each of the parties to the contract makes a promise[12] or set of promises to each other.
For example, in a contract for the sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller's promise to deliver title to the property.
These common contracts take place in the daily flow of commerce transactions, and in cases with sophisticated or expensive precedent requirements,
which are requirements that must be met for the contract to be fulfilled.
Less common are unilateral contracts in which one party makes a promise, but the other side does not promise anything. In these cases, those accepting the offer are not required to communicate their acceptance to the offeror. In a reward contract, for example, a person who has lost a dog could promise a reward if the dog is found, through publication or orally. The payment could be additionally conditioned on the dog being returned alive. Those who learn of the reward are not required to search for the dog, but if someone finds the dog and delivers it, the promisor is required to pay. In the similar case of advertisements of deals or bargains, a general rule is that these are not contractual offers but merely an "invitation to treat" (or bargain), but the applicability of this rule is disputed and contains various exceptions.[13] The High Court of Australia stated that the term unilateral contract is "unscientific and misleading".[14]
In certain circumstances, an implied contract may be created. A contract is implied in fact if the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, John Smith, a former lawyer may implicitly enter a contract by visiting a doctor and being examined; if the patient refuses to pay after being examined, the patient has breached a contract implied in fact. A contract which is implied in law is also called a quasi-contract, because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. Quantum meruit claims are an example.
Invitation to treat[edit]
Where something is advertised in a newspaper or on a poster, the advertisement will not normally constitute an offer but will instead be an invitation to treat, an indication that one or both parties are prepared to negotiate a deal.[15][16][17]
An exception arises if the advertisement makes a unilateral promise, such as the offer of a reward, as in the famous case of Carlill v Carbolic Smoke Ball Co,[18] decided in nineteenth-century England. The company, a pharmaceutical manufacturer, advertised a smoke ball that would, if sniffed "three times daily for two weeks", prevent users from catching the 'flu. If the smoke ball failed to prevent 'flu, the company promised that they would pay the user £100, adding that they had "deposited £1,000 in the Alliance Bank to show our sincerity in the matter". When Mrs Carlill sued for the money, the company argued the advert should not be taken as a serious, legally binding offer; instead it was a "mere puff"; but the Court of Appeal held that it would appear to a reasonable man that Carbolic had made a serious offer, and determined that the reward was a contractual promise.
Although an invitation to treat cannot be accepted, it should not be ignored, for it may nevertheless affect the offer. For instance, where an offer is made in response to an invitation to treat, the offer may incorporate the terms of the invitation to treat (unless the offer expressly incorporates different terms). If, as in the Boots case,[19] the offer is made by an action without any negotiations (such as presenting goods to a cashier), the offer will be presumed to be on the terms of the invitation to treat.
Auctions are governed by the Sale of Goods Act 1979 (as amended), where section 57(2) provides: “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner. Until the announcement is made any bidder may retract his bid."
Electronic contracts[edit]
Entry into contracts online has become common. Many jurisdictions have passed e-signature laws that have made the electronic contract and signature as legally valid as a paper contract.
In India, E-contracts are governed by the Indian Contract Act (1872), according to which certain conditions need to be fulfilled while formulating a valid contact. Certain sections in information Technology Act (2000) also provide for validity of online contract.[20]
In some U.S. states, email exchanges have become binding contracts. New York courts in 2016 held that the principles of real estate contracts to apply equally to electronic communications and electronic signatures, so long as “its contents and subscription meet all requirements of the governing statute” and pursuant to the Electronic Signatures and Records Act (ESRA).[21][22]
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