GENERAL FORMATION OF CONTRACT
There are 5 elements that need to be present for a contract to take form between parties:
- Contractual intention; and
- Legal capacity.
There are no requirements as to the form of the contract for it to be binding. A contract is valid and enforceable no matter if it is in writing or oral, as long as the above elements are fulfilled at the time of the formation.
For an offer to be effective it has to be communicated to the other party and the acceptance must be clear. The acceptance must usually also be communicated to the other party in order to be effective and it must correspond with all of the terms of the offer. If any of the terms are not accepted, the acceptance is void and amounts to a new offer which requires acceptance from the other party.
An acceptance must be unambiguous and the parties must not have anything further to discuss in relation to the terms of the agreement. The acceptance do not need to be spoken as “I accept your offer”, any indication of that the party treats the offer as accepted is sufficient and amounts to acceptance. However, written contracts are much easier to uphold in court than verbal contracts.
CONTRACT BY STATEMENT OF PRICE
In some circumstances a seller may give a statement of price in answer to an enquiry in relation to the price of the goods. Such statements may amount to offers as indication that the seller is prepared to be bound without further negotiations. The assessment of whether a statement of price amounts to an offer depend on the value of the goods. If the goods are valuable it is less likely that the statement alone will amount to an offer.
Parties do not usually intend to be bound by an agreement until a contract has been entered into, which the courts needs to have in mind when determining if a contract has been entered into. If the parties have not agreed on details, the court needs to consider any correspondence and other evidence that may establish that there was an intention between the parties to be legally bound.
CONTRACT BASED ON CONDUCT
There may be situations in which the parties do not expressly discuss the formation of a contract and the elements therefore are hard to identify. A contract may still be at hand if the parties by conduct indicate that there is a contractual intention. The contract may have been entered into many years earlier and therefore there might be no evidence of what was said at the time of the formation, however if the parties conduct have been consistent during the years, a contract may be considered established. An offer or acceptance alone may be effective on the basis of the conduct of the parties.
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