Fundamental Elements of a Contract
Every legally enforceable contract contains a few fundamental elements: an offer, acceptance, consideration, competency, mutuality of obligation, legal capacity, and terms and conditions. Contracts can be verbal or in writing. Any ambiguity surrounding these elements can lead to the voidance of the contract. Therefore, it is necessary to understand them precisely. Here’s a rundown of these fundamental elements of a contract.
The offer is the first step toward making a contract. The offer is the communication by one party of their intention to enter into a contract with another party. This willingness must be accompanied by the understanding that the contract will be binding and will oblige them to perform certain tasks and take on certain responsibilities, depending on the terms of the contract.
There are various ways for an offer to be made: a letter, an email or any expression that communicates the foundation of the party making the offer’s willingness to enter into a contract. An offer comprises a statement of intent to enter into a contract, a proposition with clear terms, and the identification of the intended recipient.
The acceptance is the offer recipient’s consent to enter into the contract on the terms expressed by the person making the offer. Only the intended recipient can do this unless another party has been authorized to consent on the recipient’s behalf. Additionally, the acceptance of the contract must be performed according to the specifications of the offer.
The offer recipient can also make a counteroffer, which consists of a rejection of the original offer and the proposition of another to be made to the person who originally made the offer.
Consideration can refer to either a promise or money. It is a vital part of a contract because it is the basis or incentive for the parties to enter into the contract. The parties bargain for the consideration, and one party exchanges it for the performance or promise of the performance of the other party. The agreed-upon performance or promise is a consideration in itself.
To establish one party’s competency to enter into a contract means to ensure that they have the capacity to knowingly and consensually enter into a contract. This means the party cannot be a minor, insane, drunk or on drugs when agreeing to enter into a contract.
Mutuality of obligation
For a contract to be enforceable, both parties must understand the terms of the agreement, agree to them in the intended sense of the contract’s terms, and do so simultaneously. There must be an established mutual interest, and if one party is revealed to have been misled about the contract’s terms, then the contract can be voided. The courts use a process of reviewing the parties’ communication and a record of their performance of the contract’s terms in order to conclude whether a proper mutuality of obligation had been determined.
While competency is the legal establishment of a party’s ability to make an informed decision to enter into a contract, capacity refers to the more fundamental requirement that both parties to the contract be people. For instance, corporations and other legal entities are now considered by law to be persons. Something could happen to cause a legal entity to cease being considered legally a person, which could have serious ramifications for the contract. In order for a contract to be enforced, both parties to the contract must have the proper legal capacity that allows for them to enter into a contract in the first place.
Terms and conditions
The terms and conditions are the real nuts and bolts of a contract. Terms and conditions establish obligations for both parties to the contract. They require that each party perform certain tasks in order to satisfy the contract’s terms. If it is found that a party did not perform the tasks specified by the contract’s terms and conditions, the party is found to have reneged on the contract, and it can be legally voided.
Project managers and contract knowledge
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