When is a Contract Enforceable?

“Some turnout a hundred grand – Get with it we will shake his hand”

Chain Lightning by Steely Dan

WHEN IS A CONTRACT CREATED? 

A contract is different from a promise because a contract is an agreement that creates legally enforceable obligations.

A contract is created when the following requirements are met:

• There is an offer,

• The offer is accepted,

• There is a mutual intention to create a binding contract,

• The essential terms are certain,

• Something of value is exchanged.

A contract does not need to be written and there is no need to sign at the dotted line or shake hands. The only requirements are those stated above.

CAN A CONTRACT BE CREATED WITHOUT AN OFFER?

There cannot be a contract without first making an offer.

An offer can be verbal or in writing. For example, “I will sell you my copy of Aja by Steely Dan for $50”.

An offer does not last forever. It can expire after a reasonable amount of time. It can be made subject to an expiration date. It can also be withdrawn.

CAN A CONTRACT BE CREATED WITHOUT ACCEPTANCE? 

There cannot be a contract without accepting the offer.

Acceptance is a clear, unconditional agreement to all terms of the offer. Acceptance can be communicated verbally or in writing. Acceptance can also be communicated by conduct, such as by performing the responsibilities of the contract.

It is not necessary to sign at the dotted line. A signature on a contract is not itself a necessary component of acceptance. A signature is just evidence of acceptance.  

WHAT IS A MUTUAL INTENTION TO CREATE A CONTRACT?

Each party to the contract must intend to be bound by the contract.

You cannot create a contract through a joke. For example, “I will give you a million dollars if you pick me up from the airport”. It is obvious that the party making the offer does not intend to be bound by the contract.

A contract is also very different from a bylaw. A bylaw is not a contract because it does not need to meet the requirements of a contract. A bylaw is adopted by the exercise of democracy within a Strata. We have several articles about bylaws, and an important one addresses the scope of bylaws.

DO THE ESSENTIAL TERMS IN A CONTRACT NEED TO BE CERTAIN?

The essential terms of the contract must be sufficiently clear. The essential terms include:  

• Who the parties to the contract are,

• What obligations the parties must perform,

• What price or service will be exchanged,

• How and when the obligations will be performed.

It is not necessary to specify every minor detail.

CAN A CONTRACT BE CREATED WITHOUT EXCHANGING SOMETHING OF VALUE?

Each party to the contract must exchange something of value. This can be money, goods, a service, or a promise. An unenforceable agreement does not become an enforceable contract until something of value is exchanged by all parties.

The exchange of money for goods is common. The contract could also be complete when money is provided in exchange for a promise, such as providing $50 in exchange for the promise to deliver a copy of Aja by Steely Dan within a reasonable amount of time.

THERE ARE MANY WAYS TO CREATEA CONTRACT

There are more ways to create a contract than can be covered in a single article. An unenforceable agreement does not become a binding contract unless the following requirements are all satisfied:

• There is an offer,

• The offer is accepted,

• There is a mutual intention to create a binding contract,

• The essential terms are certain,

• Something of value is exchanged.

If just one of these requirements is missing, the contract will fall apart, and the parties will have failed to create legally enforceable obligations. Parties should be guarded against entering into a contract with significant obligations or for large sums of money without first seeking legal advice on the validity of the contract.