Draft or incomplete contracts can, in certain situations, be binding and enforceable documents. However, the court will also consider the facts and circumstances of your case, including how each of the parties conducted themselves. Therefore, it is crucial to seek tailored advice about your particular situation. This article will provide an overview of the elements which make up a contract and what an ‘invitation to treat’ is. Additionally, the article will explain how implied consent by a party may cause a draft or incomplete contract to have binding consequences.

What Are the Elements of a Contract?

The elements of a contract which signify an enforceable contract include:

Element Question to Ask What Do the Courts Consider?
Offer and acceptance Have the parties reached an agreement?
  • Can the recipient interpret the offer as an invitation to form a legal relationship?
  • Is it merely an ‘invitation to treat’ or a request to engage in negotiations to form a contract in the future?
  • How have the parties behaved?
  • How would a reasonable person interpret the actions and intentions of the other party or parties?
Certainty Is the contract precise enough for it to be binding?
  • Are the key terms present? Key terms are the essential terms for the draft or incomplete contract in question. For example, these might specify the price, descriptions and term or duration for the specific goods or service.
  • Are the rights and obligations of the parties identified?
  • Do the parties believe the document is going to be upheld as a contract?
  • How have the parties conducted themselves? For example, is a party behaving with certainty and continuing with an arrangement despite the fact the contract is uncertain?
Consideration Is this contract legitimate and relating to something of value?
  • A real (not frivolous) promise made by each party will demonstrate consideration.
  • Has there been payment in exchange for something?
  • Are there tangible benefits and detriments associated with a potential contract?
Intention Do the parties intend to be bound by this contract?
  • Is the contract too uncertain for intention to be obvious?
  • Do the parties actions suggest they won’t contract without specific key terms?
  • Has the parties’ conduct suggested they won’t sign the contract? 
  • What is the relationship between the parties? For example, a close relationship such as between friends or family may detract from this intention.

How Do I Know if a Draft Contract is an ‘Invitation to Treat’?

An ‘invitation to treat’ characterises a draft contract as an ‘agreement to make an agreement’. In this situation, the document is not a binding contract, but rather one step in the process of forming a future contract. For example:

  • an organisation announces a scholarship competition inviting candidates to present themselves for consideration; or
  • a contractual clause that gives a party the first right of refusal on buying another business.

What is Implied Consent?

Implied consent occurs when the conduct of the parties acts as the essential elements of a contract. Overall, this means the court would interpret a party’s action or inaction as indicating consent to the binding contract.

Therefore, it is vital to be aware of implied consent because its presence can characterise an otherwise incomplete contract as a binding contract. For example:

  • parties communicate that an agreement will go ahead on particular terms, ‘subject to finance’;
  • a party writes “approved” on a document but does not communicate approval of the contract to the party that made the offer; or
  • a party takes out a loan relevant to fulfilling their obligations specified in the document.

Key Takeaways

It is the combination of essential elements that form a contract, being:

  • offer and acceptance;
  • certainty;
  • consideration; and
  • intention.

However, a draft or incomplete contract may still be binding even when significant parts are missing. As such, when determining whether a draft or incomplete contract might be binding, it is essential to pay attention to the conduct of the parties. If you have a draft or incomplete contract and are uncertain of whether or not it is enforceable, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

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