A lesson in Contract Law

Contracts can take many forms. For most agreements, it is not even necessary for the contract to be in writing. There are several features that do need to be present for a contract to be formed between two or more parties.

Offer and acceptance
An offer can be made to enter into an agreement by one party, however the agreement will not become binding on them until such time as the other party has communicated acceptance of the offer. At any time up until the other party has accepted the offer, the offer can be withdrawn.

Those under the age of 18 years do not have capacity to contract. Nor do those who are of unsound mind or suffering from a condition impairing their decision making ability.

An intention to be bound by the agreement
What constitutes an intention to be bound really depends up on the circumstances of the case. If for example you offered to lend your neighbour your lawnmower, it is highly unlikely that either of you would intend to enter into a legally binding relationship. If on the other hand, you agreed to lend the neighbour your mower for the next 6 weeks in exchange for them paying you $20 a week for the use of it, there could well be inferred that there is some legally binding contract in place.

The consideration is commonly the price paid for an agreement. There must be consideration for a contract to be valid. Consideration does not always need to be in the form of money, though. For example, if I lent you my mower and in return you agreed to mow my lawns, the consideration for the use of the mower is my neighbour’s mowing of my lawns.

This last feature of a contract is often the most troublesome in business and this is where your solicitor will usually earn their fee. A poorly drafted contract can have completely unintended results or perhaps could have such little certainty that it is not a contract at all.

“I agree to mow your lawn for $20.00 per week” may seem like a fairly certain agreement, however the following uncertainties could well arise
* how long will this arrangement continue? – 6 weeks, 6 years, until I die?
* what if I move on to a 5 acre lot from my suburban block? Will the contract continue then?
* how often will you mow my lawn, will it be weekly or am I paying you a wage of $20 per week to mow it monthly?

Even if a contract contains enough certainty for it to be binding on the parties, it can still be ambiguous. A badly worded or punctuated sentence can often have more than one meaning. It’s the difference between “Let’s eat, Grandma!” and “Let’s eat Grandma.” The common law says that if the meaning could be one of two things, the interpretation that favours the person who did not draft the document will be preferred.

Contract law is complex – you should seek the assistance of your solicitor if you are about to enter into any significant contracts or agreements.