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Basic Contract Law

A contract is a legally enforceable promise.Contracts are either express (manifested by words) or implied (manifested by conduct).

The basic principles of contract law govern whether a contract is legally enforceable.

Common law is the primary source for most contract law. The Uniform Commercial Code governs sales contracts.


Contract formation requires mutual assent, which means the parties must agree to the same terms. Courts analyse the assent of the parties using objective and subjective intent.

Objective intent exists if a reasonable person would understand from a party's words or actions that he intended to form a contract. Subjective intent addresses the party's personal intent. Regardless of objective intent, there is no contract absent subjective intent.


To form a contract, there must first be an offer, which communicates an intent to be contractually bound.

Opinions, letters of intent, invitations to submit a bid, price estimates and advertisements, for example, do not constitute offers, An offer is not valid until it is received. Upon receipt, the offeree may accept or revoke the offer. Some offers include a limited time for acceptance, and allowing that period to lapse equals revocation.


A unilateral contract is accepted by performance. For example, suppose you say to a friend, "I will give you one million dollars when you swim across the English channel." If he swims across the English channel, you owe him £0.6 million. If he never swims across the English channel, however, no contract is formed. A bilateral contract is accepted by return promise. For example, if you agree to paint a friend's house, and your friend agrees to pay you £650 in exchange, you have formed a bilateral contract.


Including a recitation of nominal consideration as a formality does not create a legally enforceable contract.

Legal consideration requires that each party to the contract incur some legal detriment which has been bargained for. A party incurs legal detriment if she engages in an act she was not previously obligated to perform absent this agreement, or if she agrees not to exercise a legal right. If consideration is absent, the promise is an unenforceable gift.


The law does not require written contracts in all circumstances. A written contract is required if the agreement cannot be performed within one year or involves a lease of real property or goods for greater than one year. The law also requires a written contract for any agreement to sell land, goods over £325 or other personal property valued at over £3,250.


After parties form a contract, they may legally modify it.The parties must modify the contract in good faith. Duress, compulsion or extortion will render the modification unenforceable. Modifications do not have to be supported by consideration. Modifications do not have to be in writing unless the original contract was required by law to be in writing, or the terms of the contract require modifications to be in writing.


A party who subsequently fails to perform the duty promised in the contract breaches that contract. If a breach occurs, the injured party may sue for expectation damages, reliance damages, and restitution. Expectation damages put the injured party where he expected to be, financially, at the formation of the contract.

Reliance damages compensate the injured party for any expenses she incurred in reasonable reliance on the breached contract. Restitution compensates an injured party for any performance she conferred to the other party prior to the breach.