A contract is an agreement between two or more parties.

For a contract to be valid and enforceable by

law it must contain a number of elements. That is, it must follow a set of principles. If these elements
are present then the contract is enforceable and must be honored. Failure to honor a contract can lead
the party harmed by the failure of the other party to satisfy the contract to seek legal remedy.

Contracts in Everyday Life

So much of everyday life depends upon contracts. People buy or sell property, exchange goods or
services, get married. Some contracts are rather informal and may be merely an oral agreement or
understanding. Other contracts are written in precise legal terminology and may require
acknowledgment by a notary public and/or be filed in a court of law.

Whether the contract is informal or formal, written or oral, understanding the basic principles and
elements of contract law can help avoid legal disputes in the future. A consumer using a checklist of the
elements of the contract itself can determine whether the mutual set of expectations and obligations
are understood so that they can be fulfilled. These elements of law are vaild in all civil law systems and
by internation agreements.

Elements of Contract Law

There are eight key requirements for a contract to be considered valid:

Key Requirement 1: Agreement (Offer and Acceptance)

Generally speaking one party has something or can provide a service that the other party desires. What
is important in a contract fulfilling this element is that both parties have a clear understanding of what is
being offered and under what conditions.

A simple example may illustrate this point. Party 1 wants yard work done and is willing to pay $10.00 per
hour. Party 2 is interested in cutting grass for $10.00 an hour. They agree in principle, however Part 1
intends that yard work consists of cutting, raking, edging, bagging the grass while Part 2 only intended
cutting the grass. The point here is carefully qualification of what is wanted and what can be delivered
can later avoid a contract dispute.

Key Requirement 2: Legal Capacity

Parties to a contract must have the legal capacity to enter into an agreement. Age is one consideration,
for example, a ten year old cannot enter into a contract. Infirmity and mental capacity of one of the
parties will invalidate the contract.

Key Requirement 3: Consideration

This element states that each party must bring something to the bargain or agreement. A car dealer
exchanges the vehicle and receives money from the buyer. Consideration states nothing about the
fairness of what is offered. Continuing with our grass cutting example, Party 2 can accept the grass
cutting job for a penny. This may not seem fair but if this was the understanding among the parties it
would be enforceable.

Key Requirement 4: Legal purpose

The contract cannot be illegal. That is it must be in compliance of the law of the land and public policy. A
contract for the sale of illegal drugs does not constitute a legal contract.

Key Requirement 5: Legality of Form

In certain instances the law has stated that certain forms and procedures must be abided by. For
example, in money lending, certain documents or statements such as Truth in Lending must be part of
the written contract.

Key Requirement 6: Intended purpose

Not every detail can be written down when parties enter into contracts. Some elements rely on intent.
For example, if two businessmen, to their mutual benefit, discuss and agree to contract, whether this is
explicitly stated, their cooperation is sufficient to indicate that their intention was to create a contract.

Key Requirement 7: Consent to contract

A contract is created when there is an agreement between the parties. A promise by one party without
acceptance by the other does not create a binding contract. Back to our grass cutting example, if Party 2
says they are going to come over and cut Party 1s grass, there is no contract. Party 1 has not entered
into a contract and Party 2 is not legally required to cut the grass.

Key Requirement 8: Invalidating conditions

If one party misrepresents what they are offering or what they will exchange in the performance of the
contract, the contact is invalid. If the contract were to be entered into under duress by threatening
either physical or economic harm would also constitute a reason for invalidating the contract.

Reference:

Eisenberg, Melvin A. (2002) Gilbert Law Summaries: Contracts. Chicago: The BarBri Group ISBN
9780159007761.