Wondering what are the essential contract elements?
Are you wondering how many elements there are in a contract?
Perhaps you want to make sure that your contract is legally binding.
In this article, we’ve got some answers for you.
We will look at the essentials of a valid contract and go over the contract elements that are crucial for you to be in the presence of a legally binding contract.
We have divided this article into the following sections:
- What is contract element
- How many elements in a contract
- What are the contract elements
- Does the contract have to be in writing
Let’s get started…
What is contract element
When we refer to contract elements, we are referring to contractual aspects and conditions that must be fulfilled for a contract to become legally binding and produce legal effects.
Entering into a contract allows the parties to define one another’s obligations, clarify each other’s obligations and ensure that all parties are protected in case one does not carry out its obligations.
To achieve the protection awarded by law, you must ensure that the contract is validly formed.
That’s when the essential contract elements must be satisfied for a contract to be valid.
Without the contract basic elements, a contract may not produce legal effects as you intend it.
How many elements in a contract
There are five elements of a valid contract:
We will look at each of these elements in detail.
These contractual elements are crucial in case you need to invoke your contract in court or against the other party.
To legally invoke a contract and request contractual remedies, you must first establish that a contract exists in the first place.
You’ll need to prove the contractual elements to demonstrate your contractual relationship based on which you will claim for damages or ask for the execution of certain obligations.
What are the contract elements
To make sure that you are effectively in a binding contract, five contract elements must be present as essentials components of a valid contract.
If these contractual elements are not present or do not respect the law, then you may not be able to prove the existence of a valid and legally binding contract.
Let’s start with an offer.
An offer is when one person offers to do or not to do something and communicates his or her intention to be bound by the terms of the offer.
An offer is pretty much a proposal containing the essential elements of a contract to be formed if accepted by the other party.
The essential elements of an offer to contract can be summarized as follows:
- Identification of the parties
- A valid object
- A valid cause
For example, if I offer to buy your bicycle for $100, I’m the offering party, the object of the contract to be formed that I pay you $100 in exchange for your bike and the cause of the contract, the sale of the movable property, is not prohibited by law.
The offering party, or the offeror, by making an offer must have a serious intent to contract.
In the same example, if I tell you that I would like to buy your used bicycle for the sum of $100, I’m effectively making you a valid offer with a serious intention to be bound in case you accept it.
If I tell you that I’m thinking of buying your used bicycle for the sum of $100, then we cannot conclude that there is an offer as my intention is not yet definitive to make a binding offer.
In the business context, if you advertise your product or service and list a price, that’s generally not seen as an offer unless your advertisement makes it clear that you are making an offer that can be accepted by your audience.
The acceptance of an offer is when the party receiving the offer expresses, in clear terms, his or her willingness to accept the terms of the offer and be bound by the content of the offer.
On the one hand, the offer must contain the essential elements of a contract to be formed and the acceptance must clearly and without any doubt demonstrate that the offeree has accepted the offer.
If an offer is accepted without any reserve, then a contract is formed.
If an offer is not accepted entirely, the offeree may make a counter-offer thereby becoming the offeror and the initial offeror becoming the offeree.
If the offer is not accepted, then the offer will become null and void and cannot be accepted afterward unless the offeror makes a new offer.
In some cases, an offer may be accepted by the performance or the non-performance of an act or deduced implicitly.
If you walk into a restaurant, sit down, order your meal and eat it, you are effectively bound in a contract to pay for that meal on the basis of the prices presented on the menu.
Your actions of looking at the menu and ordering from the menu and eating the food makes it clear that you are obligated towards the restaurant owner.
If the offer provides a timeline within which acceptance must be received, then the acceptance will result in a contract validly formed when it is accepted within the presented timeline.
An offer accepted after the expiration of the acceptance delays will not be legally binding but can be considered as a counter-offer.
In most cases, acceptance cannot be implicitly inferred from a party’s failure to respond or act.
You can read our article on how contracts are formed for more useful information on the essentials of contract formation.
The cause of the contract must be valid.
If you contract to have someone killed, quite naturally, that cause is prohibited by law.
The cause of the contract is the purpose for which it exists.
In many countries, it is illegal to pay a woman to carry a baby for another.
If this is a prohibited cause, then even a contract validly formed will be declared as null and void considering the cause based on which it is formed is illegal.
If you are buying or selling a home, the cause of this contract is to exchange property, then the cause is legally sound and permitted.
The object of the contract is essentially the obligations the parties have agreed to.
In most contracts, the obligations are either to do something or not to do something.
If you are selling your bike, your obligation is to deliver the bike and the obligation of the buyer is to pay you $100.
The correlative obligations between the parties is the object of the contract.
The capacity has to do with the contracting party’s ability to enter into a contract.
Legally speaking, in most jurisdictions, a person over the age of 18 will have the capacity to enter into contracts.
A minor, someone below the age of 18, will not have the capacity to enter into a contract unless the local laws permit it in exceptional cases.
The question of capacity will also be relevant in cases when someone has a medical condition or is ill in such a way that they were mentally unable to give consent to be bound to a contract.
If a contract is signed without legal capacity, then that contract may be declared as null.
Does the contract have to be in writing
The form of a contract is not an essential element required for a valid contract to be created.
It is recommended that you put your contracts in writing.
We can consider a written contract to be the sixth contract element in cases where the law requires that a contract be in writing and respect certain formalities.
In many jurisdictions, to register a hypothec on a property, you will need to have a mortgage agreement in writing and subsequently published against the property.
In this case, the form of the contract is the sixth contract element needed for a valid mortgage or lien to be taken against a property.
Generally speaking, by having a written contract, you are able to clearly define the obligations of the parties and demand the execution of what was agreed in case of breach.
You can even demand contractual remedies depending on the nature of the contractual breach and the terms and conditions of your contract.
If you are entering into a really simple contract, like selling your bike for $100, you will most likely not need a written contract.
However, if you want a contractor to build a house for you, you’ll want to make sure that the terms of your contract are in writing and the obligations are clear.
You will be paying a lot of money and it’s only natural to want to have a contract protect you in case the builder does not build a house according to specifications or breaches its obligations in some ways.
To have a valid contract, you must ensure that the basic contract elements are respected.
If your contract elements are not present, you may not have a validly formed contract and the contractual remedies you’ve negotiated may not be available to you.
Every contract starts with an offer where a person obligates himself or herself to do something or not to do something in exchange for something else.
If that offer is accepted by the offeree, then we have a valid contract between the offeror and the offeree.
If you are entering into a complex commercial relationship or you really need legal protections, make sure that you observe the five essential elements required for a contract to be valid.
We hope you enjoyed this article.
Best of luck with your contract!