A contract is a legally binding agreement between at least two parties.
To make a contract legally binding, these elements must be present.
Firstly, an offer. Without an offer, there’s nothing to accept, and there can be no contract, let alone a legally binding one. A received offer marks the official start of the contract process. With an offer, one party can now accept, negotiate, attempt to clarify, ignore, or reject the offer.
Secondly, acceptance is when the other party accepts the specific terms and conditions proposed. The following requirements are needed for acceptance to be valid. The offer must remain open. This means that acceptance of the offer must happen whilst the offer is still open for acceptance. One cannot accept an offer that is no longer open. Acceptance must mirror the exact terms of the original offer. The offer must be unconditional; the acceptance cannot be subject to further conditions being satisfied. The person making the offer must know that their offer has been accepted, usually done by writing or words.
Thirdly, awareness is a requirement for both parties to actively participate in the contracting process. For a contract to be legally binding, both parties must be aware they are entering into an agreement. To do this, they must acknowledge that the contract exists, and both parties must agree that they are bound to the obligations of the contract by their own free will.
Fourthly, a consideration is a form of payment or another benefit. Both parties must give consideration to form a legally binding contract. Consideration is what each party promises to do under the contract. This can be thought of as the output of the contract: the goods, services, or another thing of value that each party is willing to offer to form the agreement. The value of the consideration is not relevant.
Fifthly, a capacity considers the individual’s legal capacity to sign the agreement. For the contract to be enforceable, all signatories must demonstrate a clear understanding of the contract’s obligations, terms, and consequences prior to signing. Someone who may not have the legal capacity to sign a contract is a minor.
Lastly, legality means all contracts must comply with the law for all applicable jurisdictions where the contract will be enforced. Additionally, contracts involving illegal products or services or relating to criminal activity are not enforced.
In conclusion, the essential elements of a contract are the offer, acceptance, awareness, consideration, capacity and legality.
If you are entering into a contract and need guidance, don’t hesitate to contact Nick Attwell on 01473 229200 or email him at [email protected].
Our blogs and articles are correct at the time of writing.
These have been created for marketing purposes only and should not be considered as legal advice.
