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Elements in a Contract I

Updated on July 10, 2017

When we refer to a contract, we are often confronted, mentally at least, with images of stacks and stacks of papers that are filled with pages of paragraphs, written in a manner that is often confusing to most readers. A majority of contracts however are far simpler instruments, that most of us come across on a daily basis, often without realizing it and therefore it is only fitting that we acquire some knowledge of it.

Contracts can be divided into unilateral contracts and bilateral contracts. In instances of unilateral contacts, the offeror (the person who makes the offer) makes an offer in exchange for a performance of an act or provides monetary rewards when the offeree (the person who accepts the offer) abstains or refrains from doing a certain act.

An example of a unilateral contract occurs when an offeror says to the offeree that “I’ll give you a hundred pounds for painting my house” (contracts can either be oral or written). Likewise, a unilateral contract also occurs when someone says to another person “I’ll give you a hundred pounds if you stop smoking”. In both instances the offeree is entitled to the remuneration or the reward he has been promised as soon as he complies with the conditions or stipulations set by the offeror.

A bilateral contract occurs when promises are mutually exchanged. A man goes over to a newsstand and purchases the local daily. He pays the vendor for a copy of the local daily and he in turn receives a copy of the local daily. The exchange that occurs is an example of a bilateral contract. Bilateral contracts are commonly used in business especially with regards to the sale of goods.

Let’s look at a simple day to day example of a bilateral contract. A man enters a supermarket and after spending a minute or so walking down the aisles looking at the various products that are neatly stacked on the shelves to his left and to his right, he picks out a can of baked beans. He looks at the label, which according to law must fulfill certain criteria, and reads what’s written on it.

Because the buyer is not able to look at the contents of the can, prior to making the purchase, reasonable steps must be taken to ensure that he is made aware of what he is purchasing and therefore the label must satisfy certain requirements.

The label must be clear and easy to read, it must be permanent i.e. affixed to the can in a manner that it cannot be easily removed, it must be easy to comprehend or understand and it must not be misleading i.e. the description on the label must correspond with the content in the can.

Information on the label includes the type of food or the name of the food that’s in the can, the best before date or the expiry date, any necessary warnings, quantity information (weight), a list of ingredients, the name and address of the packer or seller, the lot number, any special storage conditions and any instructions for cooking, if necessary.

Now the man having read the label is satisfied that that is the can of baked beans that he wants or requires and takes it to the counter to pay the cashier and to conclude the purchase. On most occasions, if a person purchases an item without reading the label on it, he or she is deemed to have read the label.

He stands in line and waits for his turn. When his turn arrives, he hands the can of baked beans to the polite lady at the counter who scans the barcodes printed on the label with a scanner that is attached to her terminal and the information is entered into the terminal and the price pops up on a little screen, on the small window on the till, and is visible to him.

The man looks at the numbers on the screen, fishes out his wallet from his pocket and pays the polite lady at the counter the exact amount that is required. The lady takes the money and hands him a receipt or a proof of purchase which normally contains the following information: - the date the item was purchased on, the type of item, the quantity and the amount that was paid as consideration for the item. In some cases, or instances the details of the sales person who assisted with the purchase is also on the receipt or the proof of purchase.

The man takes the receipt or the proof of purchase, puts it in his pocket and picks up the can of baked beans that he had just purchased and heads for home. This is now a valid contract in that the seller has sold an item as per the descriptions on the label and the buyer has purchased the item as per the descriptions on the label and interestingly enough during the whole transaction neither party has actually looked at the contents of the can.

A contract contains five essential elements or ingredients. They are as follows: -

(i) offer

(ii) acceptance

(iii) consideration

(Iv) intention or an intention to create a legal obligation

(v) form

An offer is made when the seller (offeror) makes an offer to sell and stacking the items on a shelf that is easily accessible to everyone that walks into the store, clearly indicates that the items on display are for sale.

The buyer (offeree) accepts by picking out the product of his choice and by taking it to the counter, after reading the label, and consideration for the item he has purchased changes hands when he hands over the money or the amount that is required for the purchase of the item.

Consideration is always in monies or monies worth and the whole transaction is done with the intention to create a legally binding obligation in that should the buyer return home and discover, when he opens the can, that in contains corn instead of beans, he can return the item to the seller and be reimbursed accordingly. The form of the contract is written as evidenced by the receipt or the proof of purchase.

We have to keep in mind that in order for there to be a contract there must be one exchange of a promise with another or one party must have acted to his or her detriment based on a promise. In the example given above, the can of baked beans was exchanged for money i.e. there was a mutual exchange.

In the instances of the unilateral contacts, the offeree acted to his or her detriment by either painting the house or refraining from smoking and therefore should be remunerated or rewarded accordingly.

Not all agreements however mature into contracts. In Re Hudson (1885) Hudson promised to pay £4,000 per year to a chapel, for 5 years, to help it pay off its debt. He died before the last 2 installments could be made and his estate refused to pay the outstanding installments. It was held that a contract had not come into existence and that there was only a gratuitous promise in place. As a result Hudson’s estate could discontinue the payments if they so desired.

It is also important to distinguish between a commercial agreement and a purely social agreement. While the former creates, a legal obligation governed by the law of contract, the latter does not. In Balfour v Balfour (1919), the husband while working overseas agreed to send regular payments to his wife. Subsequently the relationship went downhill and the husband stopped sending his wife money. Mrs. Balfour brought an action against her husband and it was held that the agreement that was in place was a purely social agreement and that it didn’t amount to a contract.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward


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