Contracts and Their Essential Elements


A contract is a binding agreement between two parties. The agreement usually lays down the terms and conditions which must be obeyed by both parties. One could be sued if they fail to observe the terms of a particular contract which they are privy to. For a contract to be binding it has to contain various elements including capacity to contract, offer, acceptance, consideration, legality and intention (Barnett, 2003). These elements are discussed in details in this article.

Capacity to contract

This refers to the ability of a party to enter into a binding contract. Those allowed to form binding agreements with other parties are said to have the capacity to contract while those not allowed to enter the contracts are said not to be in a capacity to contract. Commonly most laws do not allow minors, people of unsound mind and partnerships to contract.

A minor is a person defined by the laws of a given land as a person who has not yet attained a particular age. Most laws consider the age of eighteen years and those below do not have the capacity to enter into a contract. Any contracts entered by such a person are not binding unless exceptions exist in this case and they are usually explained by the laws of a given land (Koffman, 2007).

A person of unsound mind is not allowed to contract as they are not in a position to make decisions. It must be ascertained beyond reasonable doubt by a qualified medic that the particular person who is claimed to be of unsound mind is actually in that state. A partnership is not a legal person and can therefore not enter into contracts. Both natural persons and legal persons like companies have the capacity to contract.

Offer

An offer is an essential element of a contract. In almost all contracts one party states the terms to be obeyed by the other party. For instance, one may want to sell a given commodity at a given price within a given duration to a given class of people. Such terms constitute an offer and they must be obeyed in full if one is to accept that offer to make a binding contract. In our example above only the people who are from the mentioned class can take up that offer and they must fulfill all the other terms (Barnett, 2003).

However, one must be keen enough to differentiate between invitation to treat and an offer. Usually advertisements and display of goods in a shop with their prices do not constitute offers but simple invitations to treat. A person deciding to buy goods following a display or an advertisement is the one who offers and the owner of the goods may either accept the offer in full or reject it.

Acceptance

The existence of an accepted offer from the other party must exist for a contract to take place. Acceptance can be defined as the willingness of a party to take up the terms of a given offer in full. As mentioned before for an acceptance to be considered valid one must accept all the terms mentioned in the offer. Failure to accept all those terms results in a counter offer. Counter offer can be looked at as another offer and if accepted also brings to existence a different contract.

There are various rules that must be obeyed for an acceptance to be considered valid. For instance, in most laws a valid acceptance must be properly communicated to the party offering the contract from the other party willing to accept. What constitutes proper communication is also defined by the laws involved. Another important aspect that must be taken into consideration to define an acceptance as valid is duration.

In most cases, the person who offers states the time limit within which an offer remains valid. In situations where the time limit is not stated in the terms then reasonable time is fixed. What is to be considered as reasonable time varies from one situation to another and it may be determined by the courts in relation to the existing laws of the land. If an offer is made to a particular person or class of people, a party that does not fall into the mentioned class cannot accept such an offer. There are other rules governing valid acceptance of an offer and they may vary from one country to another (McKendrick, 2005).

Consideration

This is the price the other party is willing to pay on a contract. Also, for a contract to be a valid between two parties, one of them must accept the terms offered by the other. The party accepting the offer must be willing to sacrifice something to make the contract valid. This sacrifice is what is considered as consideration. A contract consideration has its own elements that make it valid. For instance, past consideration is usually not good consideration and it cannot be considered as valid consideration when contracting between the parties since its timeline may be already expired.

Legality

Legality refers to the state of an act to be considered valid and not to be amounting to a criminal offense in a particular country in relations to its laws. Whenever a contract is brought into existence it must be within the stipulated laws protected under the constitution. Thus, one cannot enter a contract with another person to supply a good that is prohibited in a particular place. An example of these goods is drugs that are banned in most countries as well as other contraband goods. Such contracts are not binding and cannot lead to legal obligations if one fails to uphold the stated terms since they do not have a legal backing and protection (McKendrick, 2005).

Intention

The intention of the parties to enter a contract is also a key element to make a valid contract. One cannot be assumed to have entered a contract if they are forced to sign given documents that constitute an offer. It is expected that to enter a contract both parties must be willing and none should be coerced to enter a contract. Use of unnecessary force or intimidation to form a contract renders the contract invalid and such contracts are not enforceable as they do not exist in the first place (Koffman, 2007).

The terms stated and explained above must be fulfilled for a contract to be valid. A contract that does not take into consideration the essential elements explained above is not enforceable and has no legal consequences if one fails to go by the stated terms. In case of a valid contract if one fails to uphold the terms of the contract then they can be sued for breach of contract.

References

Barnett, R. (2003). Contracts. Richland Hills, TX: Aspen Publisher.

Koffman, M. (2007). The Law of Contract. London, UK: Oxford University Press.

McKendrick, E. (2005). Contract Law – Text, Cases and Materials. London, UK: Oxford University Press.