What makes a contract legally binding (UK): the five elements and when a contract fails

For a contract to be legally binding under English law, five elements need to be present: an offer, acceptance of that offer, consideration, an intention to create legal relations, and certainty of terms. Contracts do not generally need to be in writing, so these elements can all exist in a conversation. This article works through each element with everyday examples, then looks at when a contract that ticks every box can still be unenforceable.

What is an offer in contract law?

An offer is when someone presents something for acceptance with the intention of being legally bound. The intention of being legally bound is what separates a joke from a legally binding offer.

That intention is tested objectively, not subjectively. An objective test means you take a step back, look at the situation as a third party and ask whether a reasonable person would see it as a legally binding offer. A subjective test would instead look at the thoughts and feelings of the person making the offer. Because the test is objective, a lot of the time we look at the offer from the perspective of the offeree, the person who received it, and ask whether a reasonable offeree would see it as capable of being legally binding.

Invitation to treat: adverts and shop displays

Are advertisements offers? The short answer is no. Advertisements are typically recognised as invitations to treat. The difference is that an offer carries the intention of being legally bound, whereas an invitation to treat is when you advertise something and invite others to come to you to discuss business. An invitation to treat does not automatically create a legally binding contract.

The supermarket is a good illustration. Shelf prices are typically invitations to treat. When you scan the product at the checkout, it is you making the offer to buy it at that price, and the supermarket accepts by taking your money.

Acceptance in contract law

An offer only becomes a legally binding contract once it is properly accepted. The law does not define the exact words that must be used. Instead we apply a reasonableness test: would a reasonable person believe that the person who received the offer has accepted it? That means acceptance has to be analysed case by case. A few points are clear, though:

• Varying the terms is a counter-offer. If you think you are accepting but you are actually changing the terms, you are not accepting. You are making a counter-offer.
• Acceptance can be by conduct. If someone makes you an offer and you say nothing but start acting as if you had accepted, for example by starting to perform your obligations, you may be treated as having accepted.
• Emojis can count. A thumbs-up emoji, or any emoji that could reasonably be read as acceptance, is recognised as acceptance of an offer.
• Silence typically is not acceptance. The exception is where the parties have a history of accepting offers by silence.
• The postal rule. If you accept by letter, the moment you post that acceptance is the moment you accepted, regardless of whether the letter ever reaches the offeror.

Because acceptance can be by conduct, it does not need to be in writing. Contracts overall typically do not need to be in writing either; verbal contracts are made all the time.

Consideration in contract law

Offer and acceptance alone are not enough. There must also be real consideration. Put simply, consideration is something of value that one party gives to the other in exchange for something else. I give you products or services; you give me money. My products or services are the consideration for your money.

There are four main elements of legally binding consideration:

• Benefit and detriment. A benefit must go to one party and a detriment must be suffered by the other. If I deliver a service to you, the detriment to me is the time it takes.
• Mutual promises. Each side promises something: I deliver the service, and in return you pay me.
• Sufficiency. The law must recognise what is offered as something of value.
• Economic value. Related to sufficiency, and typically evidenced by the fact that someone has actually paid money for it.

Consideration comes in two main types. Executory consideration is provided in the future: you pay me today and I deliver the contract within seven days. Executed consideration is immediate: you buy a product at the supermarket and it becomes yours straight away.

Intention to create legal relations

Even with an offer, acceptance and consideration, there is no legally binding contract without an intention to be legally bound. Intention to create legal relations is a question of fact, decided by a court case by case on the particular facts.

In commercial transactions between businesses, the intention to create legal relations is presumed, so the starting point is that a binding contract was intended. But if you are relying on a contract that was accepted by conduct, where the other party never expressly agreed but acted as if they had, then you need to prove the intention yourself.

Like the offer, intention is an objective test. We look at the facts and circumstances rather than what the person was privately thinking, including whether the statement was serious or just a puff. A puff is the opposite of a binding promise: an energy drink brand saying its drink gives you wings is marketing, not a legally binding promise. Something is just a puff if it should have been obvious to the other party that it was.

Domestic arrangements typically lack this intention. If an ex-husband tells his ex-wife she can stay at his house after her mother has died, that is typically not binding, because it is unclear for how long or on what terms. If you agree that you will cook and your partner will wash up, neither of you intends to be able to sue if the dishes are not done. That does not mean partners can never contract with each other. A professionally drafted prenup, with all the elements present and independent legal advice on each side, has a very good chance of being recognised as legally binding.

My tip from all this: do not draft your contracts too vaguely. A contract that is too vague is likely to be treated as invalid for lack of intention.

Certainty of terms

A court will not enforce a contract to which no definite meaning can be given. If it is not clear what the parties actually agreed, the element of certainty is missing and a court will not enforce terms that are unknown.

For example, if two parties orally agree to enter into a hire purchase agreement and nothing more, a court is unlikely to enforce it, because there are too many kinds of hire purchase contract to know which one was intended. If instead they agree orally to contract on the usual terms, the question is whether those usual terms are themselves sufficiently certain. If they are, a court may be able to imply them into the agreement.

Where a written agreement is mostly certain but one clause is not, a court may ignore, or sever, that particular clause. And not every term needs to be written into the contract itself. Terms can be incorporated from elsewhere, for example a website, provided that information can be found very easily.

When is a contract not enforceable?

Even with all five elements present, a contract may still not be enforceable. Three situations come up most often:

• Duress. One party puts such pressure on the other that they feel they have no option but to agree. An offer you cannot refuse is likely to be treated as legally invalid.
• The red hand rule. Where a term, especially in a consumer contract, is so burdensome, unfair and one-sided, it needs to be highlighted, as if written in red with a red hand pointing at it. This counters the fact that most people sign contracts without reading them.
• Unfair contract terms. Consumer protection legislation (the Consumer Rights Act 2015 for consumer contracts, alongside the Unfair Contract Terms Act 1977) can make a clause invalid and unenforceable where it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer. In simple terms, a significantly unfair or unbalanced clause is not legally valid.

Finally, some contracts must be in writing. A contract to sell property or land needs to be in writing to be legally binding, and certain documents such as the TR1 form submitted to the Land Registry need to be witnessed.

Next steps

Before relying on an agreement, check it against the five elements: a clear offer, clear acceptance, something of value on both sides, an intention to be bound and terms certain enough to enforce. Where the deal matters, put it in writing with specific terms, and ask a commercial solicitor to review anything that looks vague, one-sided or made under pressure.