For an arrangement to be a contract it must have three identifiable features:
- an agreement between the parties to do or to refrain from doing certain things; and
- an intention to make the agreement legally binding; and
- an exchange of value, known as consideration.
An agreement between the parties
An agreement between the parties is reflected through offer and acceptance. Offers can be made verbally or in writing, and agreement can similarly be expressed in writing, verbally or through a person’s actions.
In some instances, counter-offers may be made before the exchange is finalised. A counter-offer is not acceptance. When a counter-offer is made, the other person has the choice as to whether to accept the counter-offer or not.
A contract becomes binding once acceptance of the offer (or counter-offer) is communicated. This can be communicated verbally, in writing, or through a person’s actions. There are special rules about offers which are accepted by post, facsimile and the like, and legal advice should be sought if there is uncertainty about the acceptance of an offer.
Up until an offer is accepted, the person making it can withdraw their offer by communicating to the other person that they are withdrawing it.
Sometimes, during complex negotiations, it may be unclear what offers have been made and what have been accepted. Legal advice should be sought if there is any uncertainty.
For there to be a legally enforceable contract, the parties must have intended to enter into a legally binding agreement. This is usually inferred from the circumstances surrounding the agreement or by the actions of the parties.
If family members or friends intend to make an agreement legally binding, they should take steps to make it clear that this is their intention, such as having something in writing indicating as such.
Consideration (the exchange of something of value)
Making a contract involves an exchange of something of value to each party. Whatever is given (or paid) is called consideration. The presence of consideration distinguishes a 'commercial' contract from an agreement to gift something. A one-sided arrangement in which one person gets a benefit at the other's expense (such as in the giving of a gift) will not usually be a contract.
What is paid in consideration need not necessarily be comparable in value to what the other party is giving. As long as there is an exchange of some kind the courts will usually enforce the contract.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.