Formation of Contract

Formation of contract involves the elements that must be proved in order to establish an agreement that is enforceable by law (a contract).

It is really important to determine which agreements are regarded as contracts, and which fall outside of this legal protection. Many legal disputes will concern whether there is in fact a contract present, or more specifically at which point in a course of negotiations a contract is formed, and thus enforceable.

To establish that a contract is present, and thus, legally enforceable three elements must be proved:

1. An agreement between the two parties, established by an offer and subsequent acceptance

2. Both parties must provide consideration

3. Both parties must clearly have intention to create legal relations

If one of these elements cannot be proved, the two parties involved may have an agreement, but not one that the courts will seek to enforce. If a contract is proved, the point of contractual formation is clearly established, this means that from this moment onwards both parties are legally obliged to perform the contractual obligations that have been stipulated in the agreement. Failure to do so, may result in the alternate party commencing legal proceedings and seeking compensation in the form of damages, or some other appropriate remedy.

These three elements are further evidence of the continued existence of freedom of contract for contractual parties, the elements required to establish formation do not dictate the content of the contractual terms, but rather ensure fairness and clarity when entering into contractual terms.

It is important to note that the essential requirements of a contract do not require that the contract be evidenced in writing. Whilst for formal contracts it is commonplace to formalise in writing, so the contractual terms can be clearly established, this is not a mandatory requirement. Verbal agreements can equally form legally binding contracts, provided the three key elements are proved. There is one exception here, the sale of land and property must be evidenced in writing, however these contracts come under the area of land law, which is beyond the A Level syllabus.