Contract law is one of the essential areas of law that governs much of our everyday lives. Many of our interactions are governed by contract law, from your relationship with your employer to the purchase of goods and services.
Contract law is so fundamental, that its principles are to be found in many areas including employment law, commercial law, consumer law and many others.
The law of contracts
Under the legal system of the UK, disputes of different natures are covered by separate areas of law. Contracts are nearly always governed by contract law, but on rare occasions other areas of law may also be relevant to a dispute over a contract.
The reason that some contracts are not dealt with under contract law is because some contracts are deemed not to be legally binding. According to case law, contracts must fulfil all the elements of a contract in order to be legal.
The main components of a valid contract in contract law are:
- A mutual intent to create a legally binding agreement
- An offer to make a contract, that is accepted
- The exchange of something of value in both directions (consideration)
In addition to these fundamental principles, contract law also states that:
- Parties to a contract must be of sound mind
- The purpose of the agreement must be lawful
- The parties to the contract must consent to making a legal relationship
A legal issue resulting from a lack of capacity can arise when, for example, a seller (e.g. a car dealer) assumes a buyer (e.g. an employee of a large company) has the ability to contract on behalf of the buyer’s employer.
If the buyer does not have that authority, a contract between the seller and the buyer’s employer will not be binding. The seller may however have an action under the tort of deceit against the buyer if they pretended to have an authority to contract.
A lack of intention to create legal relations mostly arises between family members, where the court may hear disputes under family law, or may conclude that there is no relevant law which applies.
Contract law in business
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