Module 2: Law of Contracts & Elements of a Valid Contract and Privity of Contract

Question 1

What are the important things that make a contract valid?

Answer 1

• Intention of the parties to create a legally binding contract
• Offer (proposal)
• Acceptance (agreement)
• Consideration (exchange of value)
• Legal Capacity (legal age)
• Legality (all terms must be legal)
• Sometimes, form requirements (ex: sale of land etc)

Question 2

How do you know if people meant to make a contract that can be enforced?

Answer 2

• Presumption for intention to create legal relationships in commercial settings (the law assumes legally bounding agreements)
• Presumption for lack of intentions in social settings (the law assumes not legally bounding)
• Test for presence of intention is objective (the law reviews and decides objectively did the parties intend)

Question 2

How does an offer turn into a contract?

Answer 2

• Offer: A communication of the offeror to the offeree to enter into an agreement on certain terms.
• Acceptance: Must mirror the offer, be unconditional, and comply with the instructions of the offer.
• Communication of offers and acceptances is crucial for validity.

Question 2

How do you check if people can legally make a contract?

Answer 2

• Minors and impaired parties have limited capacity.
• Some contracts require written form for enforceability. (ex: sale of land, wills etc)

Question 2

What’s the difference between a casual agreement and a legal contract?

Answer 2

• Casual agreements lack the intention to create legal relations and are often not enforceable.
• Legal contracts involve the intention to create binding obligations and are enforceable by law.

Question 3

What’s consideration in a contract, and why does it matter for making contracts fair and valid?
How do you know if there’s a fair exchange of value between parties?

Answer 3

• Consideration requires a promise to be given for something of value in return.
• Fairness helps demonstrate the intention, agreement and commitment
• There is rules in place to protect parties involved

Question 4

What is privity of contract, and what does it mean for contracts between people?

Answer 4

• Only a person party to a contract is bound by it.
• Exceptions in 3-party contexts (trusts, agency relationships etc)