Whether we realise it or not, each of us encounters contract law every day and it’s a fundamental part of studying and practicing law. Below we look at how contract law affects our everyday lives, explore the key elements of a contract and what happens when a contract is breached.
Written by Grant Longstaff. Published 16 June 2025.
What is a contract?
A contract is a legally binding agreement between two or more parties and establishes the legal obligations of those involved. Such agreements are present in our everyday. These agreements can be made in writing, orally, or even implied by conduct. Even buying a morning coffee and croissant means you’re entering into an agreement. Of course, not all contracts are as simple as this, which is where contract law comes into play.
What is contract law?
Contract law governs the development, interpretation and application of contracts, ensures agreements are honoured and provides solutions for when they’re not. It’s worth noting that not all contracts are made in writing. Take the coffee example above: In placing an order you’re implying your agreement to pay for the goods provided.
Understanding contract law can help you determine when a contract exists, what it contains and what happens if things go wrong.
The elements of a contract
There are several elements which must be present in a contract for it to be legally sound.
Offer
An offer is made when one party promises something to another party (or parties).
Acceptance
After one party has made an offer, the other party has the power to accept. Once the party accepts the offer the “contract” is formed and both are committed to the agreed terms. The acceptance must be obvious and communicated in some way.
There are nuances within the acceptance stage. For instance, parties could make a counter offer, therefore changing the terms of the agreement.
Consideration
Consideration is what each party is offering, such as money, services, goods or a promise. There must be some exchange between the parties involved for a contract to become legally binding. The value of the consideration must be sufficient, but doesn’t necessarily have to be adequate. For example, a contract could agree to sell a car for a token fee. Whilst the fee agreed is significantly smaller than expected, the contract would still be legally sound as consideration was given by the parties involved.
Intention to create legal relations
The parties involved must intend for the agreement to be legally binding. This is usually presumed in a commercial context.
Capacity
The parties must have the legal capacity to form a contract and must be able to fully comprehend what their obligations will be. Those who do not have the capacity to form a contract include individuals under the age of 18, individuals under the influence of alcohol or drugs and vulnerable adults.
Illegal and void contracts
There are times when a contract will be unenforceable, and this will usually be due to illegal activity or prohibited by statute.
Freedom of contract
Freedom of contract is a key part of contract law and means the parties involved are free to negotiate the terms of their agreement without external influence. There are of course times when this can be limited, for example legal legislation could place limits on contractual freedom to prevent abuse, unfair treatment and inequality.
When do contracts require legal enforcement?
Contracts are legally binding from the moment they are properly formed. However, enforcement usually only becomes an issue when one party breaches the agreement. At that point, the injured party may seek remedies such as:
- A court order requiring the contract to be carried out. This is known as specific performance in contract law.
- Damages or financial compensation.
- Rescission. This means cancelling the contract and restoring parties to their precontractual position.
Courts will typically assess whether the breach was material and what loss occurred. They aim to place the claimant in the position they would have been in if the contract had been properly performed.
You’ll encounter contracts throughout your legal career, no matter which area of the law you choose to practice in. Though the context and purpose of those contracts will change, having an understanding of the basics will give you a solid foundation on which to build your legal knowledge.
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