Legal contracts are a central building block of Australia’s legal system, yet many consumers of legal services still ask us a very simple question: “What is a Legal Contract?” You may have entered into a contract without knowing it. Unfortunately, many legal contracts are drafted in a manner which can be quite difficult for a non-lawyer to understand. This article sets out the basic elements which are required for a contract to be valid and binding.

Offer and Acceptance

When asking the question “What is a Legal Contract?”, it’s necessary to look into the first key elements which must exist before a legal contract is formed: offer and acceptance. The details of the offer must be clearly set out so that both parties are fully aware of the subject of the contract. For instance a sale of asset agreement should include information relating to the item being sold, the price at which it is being sold and when and where the item’s title is being transferred.

Consideration

The second key element which must exist is consideration. Essentially, there must be a valid reason for the two parties to enter into the contract. Generally, consideration will be either monetary, but it can be the acceptance of some kind of liability or an undertaking to desist from taking certain action. For instance, a Confidentiality Agreement is a legal contract which prevents the two parties to it from disclosing information discovered during their time working together.

Intention to Create Legal Relations

A legal contract is not created unless the two parties clearly intend on creating legal relations. Obviously with a standard express written agreement, it’s pretty clear the intention is there. With oral, or implied contracts, this is sometimes less clear.

Competency

Finally, both parties must be legally competent in order for a legal contract to be created, for instance an individual who is mentally handicapped may not be able to enter into a legal contract.

Written/Oral and Implied/Express

A legal contract need not be written. It is possible for a contract to be formed verbally, however it’s best not to rely on verbal agreements; you should always document any agreement you make with a counterparty. Furthermore, a contract may be implied, rather than express. In this case, the details of the contract will be assumed rather than actively spelt out; an example would be dining at a restaurant. It is assumed, that when you order, you are willing to pay for the meal. This is an implied contract.

Conclusion

It’s important to remember that even if a legal contract has been created, it may be deemed contrary to Australian Consumer Caw if it is “unfair”. The Australian Securities and Investments Commission (ASIC) provides a great deal of information on unfair contract terms.

You can now answer the question “What is a Legal Contract?”. The majority of the documents provided by LegalVision are legal contracts. Examples include the Sale of Business Agreement, Confidentiality Agreement and Loan Agreement. To find the right contract lawyer for you, call LegalVision on 1300 544 755.

Lachlan McKnight

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