When you ask the average person what a contract is, the first image that’ll come to mind is a signed formal document. Although this image is not necessarily wrong, it’s not necessarily right either.

A contract is any form of legally binding agreement between two people.

In order for an agreement to be legally binding, certain conditions must be met. Suffice to say, a formal signed document isn’t a necessity when creating a contract.

When you purchase a pint at a bar – you’ve made a contract.
When you hire a venue for an event – you’ve made a contract.
When you put money into a machine for chocolate or drinks – you’ve made a contract.

How is it then that we can make a contract without saying a word, without human intervention? What elements are common between these situations that make the difference between contract and no contract?

Over this series of posts, we’re going to explore contracts in some detail – In this article we’re going to explore the history of contract law and why we need it, some examples of contract, and we’re going to introduce the essential elements of a contract.

The History of Contract

Before the nineteenth century, contract law had no real involvement in society.

The price of common foodstuffs were fixed. Although producers of wheat, bread, and beer (essential foodstuffs) were entitled to make a profit, they were not free to sell at the price the market was willing to pay.

There were several criminal offences – regrating, forestalling, and engrossing – which outlawed certain aggressive market practices which, today, would be considered business as usual.

Regrating, for example, is the practice of purchasing all available stock of a product in the market and selling it at a higher price.

The markets were not truly free until the nineteenth century when the principle of laissez-faire (literally, leave be) developed. Under the ideas established by laissez-faire, the individual was given primacy to determine his or her own interests – those selling foodstuffs could try and make as much profit as possible while the consumer was free to search for the best possible price. Consumers could, based on the market price of a particular product, take it or leave it.

This new freedom would be naught but for the enforceability of contracts.

The function of contract in society

We now live in what is called a free-market capitalist society.

What this means is that people are free to buy, retain, or sell their property at a price set between the two parties of the agreement. Excepting rights to life, liberty, and property, the state has very little involvement in the market.

The free-market couldn’t operate but for the enforceability of agreements. The market would be inefficient and uncertain if agreements properly made were not kept. The states involvement in contractual affairs seeks to ensure that legal promises are kept – and put in place sanctions for failure to do so.

Although there are examples where the state does intervene in the free market, such as setting the minimum price of labour (the National Minimum Wage Act 1998) and, more recently, minimum pricing of alcohol units, these are often for public policy reasons.

Ultimately, the state has minimal intervention in contract law.

Examples of common contracts

Here are some examples of contracts in your day-to-day life for you to think about:

1. Contract of employment – the provision of labour for payment
2. Contracts of sale – including purchasing train tickets or goods at the supermarket
3. Contracts for service – for example, phone contracts or loaning a book from a library
4. Contracts of conveyance – If you own land, you’ll hold a contract to that effect

Essential elements of the contract

There are several essential elements of a contract. We must identify each of these elements in order for a contract to be legally binding. We’re going to discuss these in more detail with terms in the next article, but for now the essential elements you need to know are:

1. Offer (which will be distinguished from an invitation to treat)
2. Consideration
3. Acceptance

In order for a contract to be legally binding, there must be an offer (a job offer, an offer to buy/sell a product, or provide a service), there must be consideration for that offer (defined as legal value), and that offer must be accepted.

Before we sum up today’s article, I’ll leave you with a question for your consideration which I will answer next time: You’re out shopping, you have several items in your basket, and you reach the till to pay for your items. Forget consideration for one moment (a difficult concept): Are you offering to purchase the items, or is the supermarket offering to sell? At what point is an offer made and accepted (and thus it’s legally binding)?

Points to take away

1. Contracts are all around us – They operate silently in the background, and we very rarely notice how much they infiltrate our lives.
2. Up until the nineteenth century, contract law didn’t exist – the prices of common foodstuffs, for example, was set. Although producers were allowed to make a profit, there were rules in place in the market to ensure that no person could profiteer or eliminate competition.
3. After the nineteenth century, ideas of the free market started to emerge with laissez-faire. This gave primacy to the individual to determine their personal needs best.
4. In the free-market capitalist economy we live in, manufacturers determine prices, and consumers can take it or leave it.
5. If contract was unenforceable, this free-market capitalist economy could not function.
6. The state ensures that promises are kept – and puts in place measures to rectify failure.
7. In order for a contract to be legally enforceable, there are several common elements: Offer, consideration, and acceptance.

Craig

Craig Ineson is a law graduate of the University of Liverpool, current student of international business law at master’s level, a passionate restaurant reviewer, and experienced content writer.
Request a Demo Promote an Event Partners
Tagged with: , ,