Essential Elements of a contract. For a contract to be enforceable at law, certain basic requirements must exist. These are:
- Agreement (offer and acceptance): The offer and acceptance identifies the point of formation, where the parties are of ‘one mind’. An offer is a definite proposal constituting specific terms for one party to enter into an agreement with another party, which is essential to the formation of an enforceable contract.
However, a valid contract requires an offer to be accepted. For a contract to exist there must be an agreement between two or more parties. This is reflected in an offer by one of the parties (called the offeror) and an acceptance by the other party (called the offeree).
Acceptance is an agreement to the specific terms of an offer. Offers do not have to be accepted through words; they can be accepted through conduct. If someone purports to accept an offer but accepts on different terms than that of the original offer, that will constitute a counter-offer rather than an acceptance. The acceptance must normally be communicated to the offeror – silence cannot be treated as an acceptance.
Consideration – Essential Elements of a contract
2. Consideration – Essential Elements Of a Contract: This is the price for which the promise or the offer of the offeror is brought. There must be consideration issuing from the promisee to the promisor, except where the agreement is under seal e.g. a Deed of gift, in which consideration is not necessary for its validity.
3. Intention to Create Legal relations: The parties to the agreement must intend it to create legal relations, i.e. to be binding in a legal sense.
An agreement may be incomplete where the parties have agreed on essential matters of detail but have not agreed on other important points. The question of whether the parties have reached an agreement is normally tested by asking whether a party has made an offer which the other party has accepted.
Agreements may not give rise to a binding contract if they are incomplete or not sufficiently certain. There will usually be no contract if the parties agree ‘subject to contract’ but never quite agree on the terms of the contract.
If the agreement is a stepping stone for a future contract or is an agreement to agree, then the agreement might be void for lack of intention to create legal relations. Moreover, a domestic contract is presumed not to be legally binding in common law jurisdictions.
4. Capacity of the Parties: The parties must have full legal capacity to enter into the contract. By this it is meant that the parties should be of the required age, be of sound mind etc.
5. Legality of Objects – Essential Elements Of a Contract: A contract is illegal if the agreement relates to an illegal purpose. For instance, a contract for murder or a contract to defraud the Inland Revenue Department is both illegal and would therefore be void contracts that are unenforceable.
Certain contracts may also be unenforceable because they are immoral and against public policy. For example, contracts for sexual services may be unenforceable or even illegal contracts in certain jurisdictions.
Though this is usually taken for granted, for a contract to be enforceable, the objects must be legal. For example, an agreement for the assassination of a person is not legally enforceable because the object is illegal.
It should additionally be noted that some statutes require special formalities like writing, seal, etc. for some contracts to be valid or enforceable. But we need not include such requirements in this discussion since they are not essential features of all contracts.
The absence of one or more of the above, which we shall discuss in details in the next article, may render a transaction void or unenforceable.