How Do I Know If I Formed A Contract?

• Published date: 13 January 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Corporate and Company Law, Contracts and Commercial Law, Landlord & Tenant - Leases
• Law Firm: Siskinds LLP
• Author: Mr Michael Weinberger

The digital age has created a variety of new issues related to contract formation. did you know that emojis can indicate an intention to enter a contract? In a case out of Israel called Dahan v Haim, a prospective tenant communicated with a landlord about renting an apartment. He expressed this through a text message involving a smiley emoji, a dancer emoji, and a champagne emoji, amongst others. The landlord relied on the positivity of the message and believed that the tenant would indeed rent the apartment. However, the renters never signed the contract and ultimately disappeared. The landlord subsequently sued, and the judge concluded that while the emojis did not create a binding contract between the parties, they did indicate the renter's optimism, and that their use led the landlord to believe that the renters were interested in his apartment.

While the purposes behind having a contract in place may not necessarily be complicated, understanding how a valid contract is formed can be. So how do you know if you have formed a contract?

With these concerns in mind, this blog post breaks down the essential components of an enforceable contract and highlights best practices to bear in mind when entering into one.

Contract basics

Simply put, a contract is an agreement, between two or more parties, that is legally enforceable. Generally, contracts outline the rights and responsibilities of the parties involved, any costs associated with the agreement, and processes for what happens if the contract is terminated or broken.

To create a legally enforceable contract:

1. all parties to the contract must have capacity;
2. there must be an exchange of an "offer" and an "acceptance". This is usually referred to as (mutual agreement); and
3. something of value must be exchanged. This is known as consideration.

Capacity

A valid contract must be entered into by two or more people who have legal capacity. For this reason, minors (those under the age of 18) and people who are mentally incapable, cannot enter into most contracts, because they do not have legal capacity.

What if someone enters into a contract while in a state of drunkenness, or while high? The Supreme Court has previously held that if that person is intoxicated to the point that they have lost capacity, the contract is not automatically void. Current case law explains that in order for the incompetent person to back out of they contract, they must show that they were incapacitated to the point that they could not...