Saturday, July 30, 2011


Taken from: “An Introduction to the Law of Contract”, Stephen Graw, Third Edition.

1.1.1 What is a Contract?

Various writers have attempted to define what is meant by the term “contract”. The words they have used have differed but the essence of each definition has remained basically the same. In all cases certain key elements stand out. The following are always included:

(a) the need for a promise or promise;

(b) the need for the promise or promises to be between two or more legally capable persons (called “parties to the contract”);

(c) the need for the promises to create an obligation; and

(d) the need for that obligation to be enforceable at law.

The essentials of any contract, therefore, are the rights, duties and liabilities that arise from the promise or promises made by the parties. The law does not lay down any comprehensive set of rights, duties and liabilities; it merely sets out parameters within which the parties’ agreement must fall if it is to be enforceable. In other words, the law of contract is not concerned so much with the specifics of the obligation (these will differ from agreement to agreement), but with the mechanics involved in and the principles regulating the formulation, performance, continuance, and discharge of the parties’ individually created obligations.

Therefore, when a court is called upon to intervene in a contractual dispute, it does two things:

1. It applies the law of contract to see whether the agreement is a contract at all, and if so, whether it is legally valid and enforceable.

2. If it decides that there is a valid contract, it interprets the words of that contract to determine the true nature and extent of what the parties have really agreed to.

Only after both steps have been taken can a court properly adjudicate on the dispute. What we have in contract then is something which exists in no other area of the law—a situation where the parties create the obligations and liabilities that will form the substance of their relationship and the courts then enforce those individually agreed obligations and liabilities as legally binding. The sole restraint on the parties’ freedom of contract is the fact that their agreement must not go outside the general parameters of principle that form what we know as the law of contract. Provided those principles are adhered to, the agreement will be enforced.

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