Agreements are an essential part of modern business. Whenever two or more parties come together with common objectives, they need to hammer out an understanding that outlines their respective roles and responsibilities. But not all agreements qualify as contracts. For a contract to be legally binding, it must satisfy certain criteria. In this article, we list and explain the elements that must be present for an agreement to qualify as a contract.
1. Offer: An offer is the first stage in contract formation. It is when one party proposes to make a deal with another. For example, if you offer to sell your car to someone, that`s an offer. The offer must be made with the intent to create a legal relationship, and it must be clear and definite enough to allow the other party to accept.
2. Acceptance: The second element of a contract is acceptance. Acceptance constitutes the agreement of the other party to the terms of the offer. For instance, if the person you offered to sell your car to accepts the offer, that`s acceptance. Acceptance must be unconditional and must mirror the terms of the offer; otherwise, it will be considered a counter-offer.
3. Consideration: Consideration refers to something of value that each party gives or promises to give to the other. It can be money, goods, services, or even a promise to do something. For example, if you sell your car to someone, the consideration is the price that the buyer pays you. Consideration is a necessary element because it shows that both parties intended to enter into a binding agreement.
4. Capacity: The fourth element of a contract is capacity. Capacity means that each party involved in the agreement must have the legal capacity to enter into the contract. For example, a person who is underage or mentally challenged may not have the capacity to enter into a contract. Similarly, a contract entered into under duress or undue influence is not valid.
5. Intention to Create Legal Relations: The fifth element that must be present for an agreement to qualify as a contract is the intention to create legal relations. This means that both parties must intend for the agreement to be legally binding. For instance, if you make an agreement with your friend to help them move, that`s not a contract because there is no intention to create a legal relationship.
6. Certainty: The sixth and final element of a contract is certainty. The terms of the agreement must be clear, definite, and capable of being enforced. If the terms of the agreement are too vague or uncertain, it will not qualify as a contract.
In conclusion, contracts are legally binding agreements that require specific elements to be present. These elements include an offer, acceptance, consideration, capacity, intention to create legal relations, and certainty. If any one of these elements is missing, the agreement will not qualify as a contract. As a result, it`s crucial to ensure that all of these elements are present when drafting and entering into a contract.