Elements of a Contract
Contracts become legally binding only when all the elements of a contract are present. To constitute a valid contract, parties must include the following:
1. Contractual Offer
There must be a "need" to support the creation of a legal relationship. This usually means that the business requirements of one party can only be met by the goods and services of the other party.
2. Acceptance of the Offer
The counterparty must then accept the offer after is it made, which may be expressed by deed, conditional acceptance, and option agreements.
3. Intent to Create a Legal Relationship
It must be evident that the parties fully understand the extent of their obligations and are consenting to be legally bound to perform the same.
4. Rights and Obligations of the Parties
Once the legal relationship has been established, this element will contain the terms and conditions of the agreement to which both parties are legally obligated to adhere to.
5. Object of the Contract (Product or Service)
This portion of the contract will describe the product to be delivered or service to be rendered in detail, to avoid any doubt as to how the obligation shall be performed.
6. Payment Terms
Once the object of the contract has been delivered or rendered, the obligation to pay arises. Payment terms may be in the form of milestones or lumpsum payment, and in some cases upfront payment.
7. Termination Clause
This portion of the contract will outline the grounds for termination of a contract, which typically includes a material breach in the contract.
In contrast, a contract may still be considered void despite having all the aforementioned elements under the following conditions:
- The contract was formed because of undue influence, duress, or misrepresentation which may come in the form of coercion, threats, or false statements.
- The contract endangers public welfare.
- The contract induces a person to commit a crime or is illegal by nature.
- One or all parties to the contract lack the legal capacity to consent to an agreement, e.g. minor.
