Contract Formation

Contract law is one of the most important area of the law that affects us all in our daily lives. Although we seldom sign a written document, we go into shops daily, we travel on public transport, we park in parking lots - these are largely all contracts into which we bind ourselves to terms and conditions. We may not be strictly aware of it, but we all participate in contractual obligations on both sides of the fence every single day. It is therefore no surprise that the issue of when exactly a contract is formed is of the utmost importance in regulating commerce and life as a consumer. Furthermore, how can we enforce our contracts, and what rights do we have under these contracts that we agree to almost subliminally day in day out. In this article, we will look at some of the key issues surrounding contract formation, and general principles of the law on contract, which govern transactions we experience in our daily lives.

In general laymen’s terms, we think of a contract as a detailed written document, and we understand that when we sign that dotted line, there’s no turning back. Actually, that’s a myth. Of course, there is definitely the possibility of receiving a written contract to sign, and indeed this would be legally binding. However there is a very real possibility of being legally bound to a contract that you don’t even realise exists. A contract can be formed by way of simply verbally saying you agree to buy some item. That is sufficient to bind you in law for most transactions, and on that basis it would be perfectly feasible to found a claim for breach. Of course, the difficulty then arises in proving what was said, which is why in practical terms more often than not a written document is used for transactions of a substantial nature. This avoids the problem of frivolous claims as to who said what and when such and such a term was agreed, which can lead to complications and lead to lengthy litigation

Contracts are generally formed at the concurrence of offer and acceptance. That means when you make an offer to buy something, and it is accepted by the seller, that then forms a contract between the two respective parties to the effect of ownership will be transferred upon receipt of payment in consideration. Usually all the vital terms of a contract will be stipulated previously, although many are implied in everyday situations, such as buying a newspaper or train ticket. These terms would also be given practical effect by the court where it would be necessary to found a legal action, which is why they largely go unstipulated. Additionally, the fact that very little litigation arises from these scenarios is another good reason for the lack of clarity necessary in small time contracts. However, when it comes to more complex agreements, best practice dictates that writing is always essential to avoid problematic legal action.

Contract formation is critical, perhaps not so much on a small scale but almost certainly on a large scale with commercial property transactions and the like forming a fundamental part of commerce. It is therefore pivotal that each jurisdiction develops its own considerations of precisely when a contract is made, in order to establish a pragmatic way to resolve disputes. Naturally it is also important to maintain a cohesive structure to the law to ensure legal certainty, particularly in an area such as contract which is so vital to the success and growth of the economy, and which regulates such a large quantity of money. By ensuing standard and structure, internally at least, it is possible to give the economy a fighting chance. It is also in the best interests of everyone to harmonise laws with those of their trading partners, to ensure smoother transactions for the benefit of the economy on a wider scale.

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