Contract Law: Elements and Essential Terms

Introduction

The contract refers to either bilateral or multilateral legal transaction in which two parties or multiple sides make an agreement on a certain object. The paramount function of the contract is to ensure fair and legal relationships between parties. In other words, it can be regarded as coordinating, orienting, and reducing uncertainty method of making agreements. The basic principles of contractual obligations are as follows: freedom of contract and responsibility for its execution (Dobson 147). Therefore, the constituent parts of the contract involve the description of the parties’ obligations and sanctions in case of breach of commitments. Depending on the number of parties involved in the transaction, the contract can be unilateral, bilateral, or multilateral. Another classification assumes that contracts can be valid, voidable, and void. The valid contract meets all the requirements and, thereby, can be considered by the court (Dobson 158). According to the voidable contract, some of the parties can cancel their obligations, while the void contract assumes no legal obligations between parties.

Main Body

One can also distinguish between unenforceable and enforceable contracts. Tepper states that the first “may have all the elements of the contract, but because of a formality or supervening event, such as the passage of a statute, the contract is unenforceable” (51). On the contrary, the enforceable one is feasible. The difference between express and implied contracts lies in the form of expression of the contract terms that can be either direct or indirect. Also, there is the executory contract that refers to the future consideration obtained after signing the contract and the executed contract that involves consideration received before signing the contract (Tepper 52). Speaking of specialty and simple contracts, it is essential to note that the first ones imply a formal written form and obligatory signing, while the second ones can be made orally or in another informal way. The two core methods of contracting are negotiation and standardization.

The contract is regarded as valid when it corresponds to the following points: agreement, consideration, intention to create legal relations, form, the capacity of contracting parties, and legality of objectives and performance. First of all, in order to sign the contract, one party should make a proposal, and the other – to take it. The first stage is the proposal with the clearly expressed intention of the party, specifying goals, certain requirements, and other peculiarities that vary depending on the situation. At this point, the offer should contain all the essential terms of the contract, be specific, and have a particular purpose (Mallor et al. 290). In case of the absence of one of these components, the offer can only be considered as an invitation to treat. For example, promotional offers, calling to sell the goods at a discount and addressed to an indefinite number of persons, cannot be regarded as legally binding contracts and represent an invitation to make an offer.

Consideration is a legal confirmation of the promises without which the contract is not subjected to legal enforcement. According to this principle, the promise to fulfill a commitment is to be considered free and not binding unless the response is expected (Morgan 125). The party receiving the promise of the performance obligations should assume all risks associated with the financial or legal damage. There are different types of consideration which express the basic principles of this component as well as the methods of its interpretation. For example, one can note adequate consideration, nominal consideration, and past consideration.

The intention to create legal relations is another option to be accepted by parties while signing the contract. Smits claims that plenty of organizations accept it to “create legally binding relations as the criterion to distinguish binding promises or agreements from statements that do not qualify as such” (64). In other words, the parties are to clearly demonstrate the mutual intention to enter into legal relations and realize the legal consequences of such a decision. The question of how the intention creates legal relations is important to establish the contract and, accordingly, its performance obligation. This is an independent element of the contract and requires a separate proof, especially in family and household arrangements. In commercial transactions, this element is presumed. Therefore, the burden of proof of its absence is on the party which denies the existence of the intent to create legal relations.

The adoption of proposals for the contract is called acceptance that is full and unconditional agreement to accept the offer. If an intention to create the contract is accompanied by a change in conditions or additional requirements, such a decision cannot be regarded as acceptance (Morgan 122). The acceptor should fully agree with all conditions specified in the offer. If acceptance diverges from the terms of the initial offer, it is considered a new offer or a counteroffer. However, it should be noted that acceptance which takes the essence of the offer yet suggests some amendments on its conditions either essential or non-essential is still considered to be an acceptance if its amendments are not likely to affect the validity of the contract. In case the interpretation of the contract causes significant difficulties in understanding its terms, then the interpretation adopted by the promisor should be recognized as the one that is correct.

Speaking of genuineness of consent, it is essential to note that several factors can invalidate an agreement among which there is misinterpretation, fraud, duress, mistake, and undue impact. Furthermore, the capability of the parties should also be taken into account. The ability of the subjects to enter into contractual relations is defined by the absence of mental illnesses, infancy, intoxication, and a number of other factors (Stone 89). The legality of the contract also matters. Drawing from the above observations, the contract should not have the action that violates the rule of law and be contrary to morality and ethics. It is also important to point out the fact that the contract should have clear goal and conditions identified and agreed by parties engaged in the contract. The contracts related to a specific business purpose, called casual, for example, the contract of sale. The failure to identify goals results in invalidity.

Conclusion

In conclusion, it should be emphasized that the contract is concluded when the parties reach the agreement on all essential terms in the required form. The key elements of the agreement are the parties’ agreement on all essential terms of the contract, the offer to conclude a contract, acceptance, and compliance with the necessary forms, if required by law. If the parties agree to sign the contract relations in a particular form such as written or notary, the contract is considered entered into force from the moment of giving it the appropriate form.

Works Cited

Dobson, Alan Paul. Commercial Law. 8th ed., Sweet & Maxwell, 2012.

Mallor, Jane et al. Business Law. Irwin Mcgraw-Hill, 2015.

Morgan, Jonathan. Great Debates in Contract Law. Palgrave Macmillan, 2012.

Smits. Jan M. Contract Law: A Comparative Introduction. Edward Elgar, 2014.

Stone, Richard. The Modern Law of Contract. 10th ed., Routledge, 2013.

Tepper, Pamela. The Law of Contracts and the Uniform Commercial Code. 3rd ed., Cengage, 2014.