Understanding the Essential Elements of a Valid Contract

All agreements are not contracts. A contract is a legally binding agreement between two or more parties. An agreement that is not enforceable by law is not considered a contract. There are many elements that are required for a contract valid, offer and acceptance, intention to create legal relationship, capacity of the parties, consent, consideration, legality of object and possibility of performance.

Offer and acceptance – in order to create a valid contract, there must be a ‘lawful order’ by one party and ‘lawful acceptance’ of the same by the other party.

An offer is also known as a promise or agreement and it needs to be in the contract. Without an offer there’s no contract. This element is to assure that the contract is legally valid or acceptable. To make an offer there should be at least two or more parties so it is legally capable of entering into a contract. There will be no contract if the parties are negotiating and have no accepted the offer.

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Intention to create legal relations- If there is no intention to create legal relations in a contract; the contract could be subject to a lawsuit. This element requires parties to come an agreement but it is not contract in the sense. In commercial agreements it is presumed that parties intend to be legally bound unless the parties expressly state the opposite.

Consideration

Consideration must be present when entering a contract, not prior. A contract without consideration is a bargain. It is something of value given by the promissor to the promisee in exchange for something of value.

Normally the thing of value is a payment.

Capacity of the parties

The parties associated with the contract must be proficient. If either party does not have the capacity to contract, the contract is not valid. Persons who are considered to be incompetent to contract are minors, persons of unsound minds and persons disqualified by law to which they are subject.

Consent

The contract must be genuine and not obtained by fraud or force. ‘Consent’ means that the parties have agreed upon the same thing in the same sense. Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. An agreement should be made by the free consent of the parties.

Legality of object

The object of the contract must not be one of which the law disapproves. It is the main purpose of the contract and must be valid. The object is deemed unlawful if it is forbidden by law; it is of such nature that if permitted it would defeat the provision of any law, it is fraudulent, it involves an injury to the person or property of any other and if the court regards it as immoral or opposed to public policy.

Possibility of Performance

If the act is impossible in itself, physically or legally, it cannot be enforced by the law. All of the other elements must be present to determine the possibility of the performance. If one or more of the elements are absent the contract will be void, voidable or unenforceable The elements above should be in order to produce a valid contract. If any of the elements are absent the agreement is not considered to be contract.