4 OTHER ELEMENTS OF A CONTRACT WE HAVE SEEN THAT A CONTRACT INVOLVES...

We have seen that a contract involves an agreement between two or more

parties, but what more is needed before the parties are bound by a contract?

This question arises because, in many systems of law, it is not enough for the

parties to reach agreement in order for a contract to exist between them; other

conditions need to be met.

In English law, for example, which applies to many projects with no

particular connection with England, the contract is seen fundamentally as a

kind of bargain, where one party confers, or promises to confer, some benefit

on the other party in return for some benefit or promise of benefit to himself.

This conferring, or promising to confer, a benefit in return for another benefit

or promise is called

consideration ; it is what you get in return for your promise

to the other party and, except in certain limited cases, it is necessary before a

binding contract comes into existence in English law. Thus, in our earlier

example of the simple contract where A agrees to build a house for B according

to B ’ s plans for a fixed price, B ’ s promise of payment of the price is considera-

tion for A ’ s promise to build the house according to the plans, and makes the

agreement a binding contract.

If the system of law applying to the contract requires consideration, this will

seldom be in issue where you have a construction contract; in such cases, it is

normally obvious what the consideration is.

Other requirements for a contract could include certain formalities; in con-

tracts involving certain subject matters the system of law applying to the

transaction might require the contract to be set out in a formal document,

with the seal or stamp of the parties to the contract. Specialist legal advice will

be needed in order to ensure that the parties’ agreement complies with any

formalities necessary before it becomes a binding contract.