Building a strong foundation: The key elements of a contract

Building a strong foundation: The key elements of a contract
10 Apr 2022

Contracts are legally binding agreements used to formalise various transactions between two or more parties. The essential elements of a contract include an offer, acceptance, meeting of the minds, consideration, capacity, and legality.

In addition, contracts can be classified based on their formation, performance, and enforceability. This will provide an overview of each of these elements and contract classifications.

Contract Classification

Contracts can be classified based on their formation, performance, and enforceability. Formation-based classifications include express and implied contracts, unilateral and bilateral contracts, and executed and executory contracts.

Furthermore, performance-based classifications include executed and executory contracts.. Enforceability-based classifications include valid, void, voidable, and unenforceable contracts.

Offer

An offer is a proposal made by one party to another to enter into a legal agreement. It must be specific and definite and communicate the intent to enter a contract. The offeror must intend to create a legal obligation, and the offeree must be able to understand the terms of the offer.

In addition, the offer must be communicated to the offeree and made with the expectation of acceptance.

Acceptance

Acceptance is the agreement by the other party to the terms of the offer. It must be communicated to the offeror and mirror the terms of the offer. If the offeree proposes different terms, it is considered a counteroffer, which can be accepted, rejected, or countered. Acceptance can be expressed (written or spoken) or implied (by conduct).

Meeting of the Minds

A meeting of the minds is the agreement between the parties on the contract’s essential terms. It requires that both parties have a clear understanding of the nature and scope of the agreement. Likewise, the parties must have a mutual understanding of the obligations and benefits of the contract.

Consideration

Consideration is something of value that is exchanged between the parties. It can be a promise, an act, or a forbearance (refraining from doing something). Consideration must be present to create a binding contract. It must be legal and sufficient, meaning that it must have some value and must not be illusory. For example, if a homeowner offers to sell their house to a potential buyer for a specific price, the consideration would be the buyer’s promise to pay that price.

Capacity

Capacity refers to the legal ability of the parties to enter into a contract. It involves two aspects: age and mental capacity. Generally, a person must be 18 to enter a contract. If a party is mentally incapacitated, under the influence of drugs or alcohol, or under duress, the contract may be voidable.

Legality

Legality refers to the requirement that the subject matter of the contract must be legal. Contracts that involve illegal activities (e.g., selling illegal drugs) are not enforceable in court. Additionally, contracts that violate public policy or morals are not enforceable.

The Bottomline

In conclusion, the essential elements of a contract include offer, acceptance, meeting of the minds, consideration, capacity, and legality. These elements must be present to create a legally binding agreement between the parties.

Moreover, contracts can be classified based on their formation, performance, and enforceability. It is important to note that while contracts can be created verbally or in writing, it is always advisable to have a written contract, as it provides more clarity and evidence of the agreement.

Do you need help from contract lawyers? GoLegal offers industry news and information for the South African legal sector.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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