A valid contract requires several essential elements: offer, acceptance, consideration, capacity, and legality.
An offer is a clear proposal made by one party (the offeror) to another (the offeree). It must be communicated effectively and should contain definite terms. For example, a mere invitation to negotiate is not an offer. The classic case of Carlill v Carbolic Smoke Ball Co established that an advertisement can constitute an offer if it is clear and intended to be binding.
Acceptance is the unequivocal agreement to the terms of the offer. It must mirror the terms of the offer exactly, known as the "mirror image rule." Any deviation from the terms is considered a counter-offer, not acceptance. The Mailbox Rule states that acceptance is effective when communicated, while an offer is only effective when received.
Consideration refers to something of value exchanged between the parties. This element is crucial because a contract without consideration is unenforceable. It can be a promise, an act, or even forbearance. However, past consideration (something given before the contract was created) typically doesn't qualify, as established in Re McArdle.
Capacity refers to the legal ability of parties to enter into a contract. Individuals must be of sound mind, not minors, and not intoxicated. Different jurisdictions have specific rules regarding the capacity of entities, such as corporations, which must act within their powers as defined in their bylaws.
Legality is another fundamental element. The contract's purpose must be legal and not against public policy. Contracts for illegal activities, such as drug dealing or human trafficking, are void. Balfour v Balfour illustrates that agreements made without the intent to create legal relations are unenforceable, even if they seem valid in other respects.
Certain contracts must be in writing to be enforceable, as dictated by the Statute of Frauds. This includes contracts for the sale of land, contracts that cannot be performed within one year, and contracts for the sale of goods over a specific value.
Moreover, the presence of duress, undue influence, or misrepresentation can render a contract voidable. For instance, a contract signed under pressure or based on false statements can be challenged in court.
Understanding these elements is vital for anyone entering into a contractual agreement, ensuring that the contract is valid and enforceable under law.