What is a Contract under Contract Law

What is a Contract? Contract Law Isn’t Always Straightforward

The question ‘what is a contract?’ may sound like it has a simple answer. However, this is an area of Australian law that often leads to confusion.

A contract is a legally binding or valid agreement between the parties to the contract. Contract law can impact many different areas of you life. A contract does not need to be in writing to be a valid and binding legal obligation, and it doesn’t even have to be called a contract.

Contract requirements under contract law

Here are the six elements an agreement needs to satisfy under contract law:

Offer and acceptance

An offer must be made by one party to another party, who must accept the offer.

Acceptance is greater than just showing a general willingness to deal with a party. For example, if you call and ask for a general quote for a product but you haven’t agreed on key elements of the transaction, such as quantity, price, colour or size, then you have not accepted the offer.

Intention

Both parties must intend on entering a legal obligation.

You don’t need to get anything in writing (although it certainly helps to demonstrate intention); a court can decide that intention exists based on circumstance. For example, offering your mate a lift to work on Saturday morning is not typically a circumstance that would infer legal intention. However, if you offer to take your friend to work every day on the basis that they will contribute $30 for petrol every week, then this is more likely to be considered as a willingness to enter a legally binding relation.

Consideration

The price paid by one party to another in exchange for delivery of a promise is called ‘consideration’.

Consideration can be in the form of money or a host of other benefits. Consideration needs to be of value, but the value does not have to match the level of contract in any way. For example, a person could rent out their home for $5 if they so pleased, and this $5 would be ‘consideration’. Of course, the value must not break other laws.

Deeds are a type of contract that, as an exception, do not require consideration.

Capacity and consent

A party entering into a contract must have legal capacity.

For example, some contracts are problematic when they involve minors, people with mental impairment, bankrupts, corporations or prisoners.

Entering a contract must be an act of free will and each party must fully understand what the agreement involves. This element is considered consent, and can become problematic when there are mistakes, duress, false statements or undue pressure or influence.

Despite this, some contracts may be considered illegal when they involve crime, are considered immoral or fraudulent.

Contracts are fundamental to the way we transact and interact in Australian consumer law, so it is important to understand your rights and responsibilities.

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