The Essential Elements of a Valid Contract

Introduction

A contract is a legally binding and enforceable agreement between two or more competent parties to perform a certain task (business dictionary, 2010). A contract is said to be valid if it is legally binding and enforceable (Steinberger, 2007). Its major purpose is to outline the terms of engagement to smoothen the achievement of the task and to avoid future disputes and litigations. A contract can either be in written or oral form. However, written contracts are preferred when it comes to resolving litigation and other disputes between the contracting parties. The parties involved must be capable of contracting and must all consent to the contract. The object of the contract must be lawful and consideration must be included. However, some other contracts require to be put in writing for them to be valid. These include contracts dealing with real property, money surpassing a certain value, or tasks whose period of performance exceeds a year. A legally binding and enforceable contract can be entered by anyone of legal age as long as he is of sound mind and is not a felon. Those entering into the contract must identify themselves usually by names, titles, or addresses.

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Agreement

The consent made to a contract must be genuine for a contract to be termed valid. Both parties in the agreement must come to a mutual assent through an offer and an acceptance. Sometimes a contract can still be declared unenforceable even when all its elements meet its objectives when it is found that the genuine assent of the parties was absent. Such a contract can be ignored by the party whose assent was genuinely missing. A contract thus loses its validity if one party is not informed of certain fundamental facts within the contract (Steinberger, 2007). This can also be the case where someone is duped to enter into a contract fraudulently. In such circumstances, one is not liable to fulfill the terms of that contract.

Genuineness of assent

If it is also proven that if one was forcefully made to enter into a contract with another party, the contract is deemed invalid. If an individual doesn’t want to enter into a contract but acts in a manner that convinces others that he is contracting is liable to the contract. This is reached on the basis of the external appearance which is accepted legally (lectlaw library, not dated). Such contracts include those which can be termed as lacking genuineness of accent, contracts that contain mistakes of drafting, those with misrepresented facts, those with undue influence, and those which were entered under duress.

Mistakes

Mistakes can be unilateral, mutual mistakes of facts, or mutual mistakes of value. An unenforceable contract can be a result of a unilateral mistake arising from mistakes in material facts. This could be so if one of the parties to the contracts knew or was supposed to know of the mistake (Anon. Capacity, Legality & Genuineness of Assent: Requirements of a Contract not dated). An error in drafting or computation can also be the cause of the unilateral mistake.

Misrepresentation of facts on the other hand occurs when one knowingly gives false or misleading information about an element of the contract with the aim of deception. This has the effect of making the contract unenforceable. Misrepresentation can either be fraudulent or non-fraudulent depending on the intent of the party involved in the contact.

Fraudulent and non-fraudulent misrepresentation

Fraudulent misrepresentation could be in the form of deliberate intention to deceive with an aim of causing an injury to the innocent. In a non-fraudulent misrepresentation, the innocent party is led to believe the validity of the statements whereas in a real sense the material facts are misrepresented (Anon. Capacity, Legality & Genuineness of Assent: Requirements of a Contract, not dated). Negligence can also occur if the party fails to take utmost care in disclosing the material facts and fails to utilize the requisite skills and experiences as demanded by the profession.

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Undue influence

This is the misuse of one’s power or trust with the aim of depriving the other party of his free will in order to substitute his ultimate objective (Anon. Contracts, 1994). If undue influence is exercised in the process of contacting, transacting, and entering into a relationship, the contract is voidable. This is a common feature between couples in marriage, doctors and their patients, and also in relationships involving attorneys and their clients.

Duress

This involves actual or threats of violence by a party intended to force or influence the other party to enter into a contract (Anon. Contracts, 1994). It can also be manifested in form of one party acting with the knowledge of the other with the aim of benefiting the other party. This leaves one party with little option but to enter into the contract by force. When the said use of force is established, the contract becomes unenforceable.

Consideration

For a contract to be valid each contracting party must be able to gain something out of it. It can either be in the form of performing a certain task or not doing it for a particular gain. If consideration is not included in such an agreement it is not valid. For example, if someone promises to perform a specific task for free and fails to, that particular person can not be sued for breach of contract. This is because according to the law of contract, a promise is not legally binding as it lacks consideration. A departure exists where the promise is made in writing through a deed. The deed is a legal document that specifies that the document has been signed, sealed, and delivered (Anon. Contracts, 1994). However, if consideration is involved in the agreement, a failure to meet the terms amounts to a breach of contract which is punishable in law.

Contractual capacity

This is the legally defined minimum mental capacity needed for one to enter into a contract and be liable to it. It is illegal to enter into binding contracts with insane individuals and intoxicated persons under any circumstances whatsoever. However, minors can enter into a contract under special circumstances especially for necessities.

Minors

In most countries, the legal contractual age is usually 18 years which means one can not enter into a legally binding contract with a minor. However, the minors are liable to enter into contracts for necessities which include among others food, shelter, and clothing. For other things like non-necessities, they don’t bind a minor until he reaches 18 when he can now enforce the contract making it legally binding. A minor can however avoid liability to a contract by disaffirmance. This means that by declaring his intentions not to be bound by a contract, it becomes voidable by law. The said intention not to be bound by the law can be manifested through words or actions (Steinberger, 2007). When disaffirms occur, all the property that had been transferred to the minor becomes recoverable even when transferred to a third party. The law demands that only the minor shall have the right to disaffirm his contractual obligations while any adult person who was party to the contract stands bound by it unless the minor decides to disaffirm him. The following persons are also considered voidable by the law:

Intoxication

A bidding contract can not similarly knowingly be entered with a person under the intoxication of any form of drug or suffers from a disability otherwise the contract becomes void (Anon. Capacity, not dated). If it happens that the party had a way of knowing of the disability or the intoxication, the consideration received is legally returnable. However, intoxication can only be a valid defense if, at the time of getting into the contract, the intoxication reduced the ability of the promisor to understand the nature and consequences of his actions, and the other contracting party ignored the fact. This implies that any contract with persons under guardianship or those who suffer from insufficient mental capacity is deemed voidable by law.

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Insane persons

A person is regarded as insane if by virtue of mental incapacitation and the subsequent loss of reasoning and proper judgment lacks control of his acts and can not distinguish right from wrong (Anon. Capacity, not dated). As a result, his status in any contract stands voidable in whatever circumstance. This protects the mentally incapacitated persons from being taken advantage of by unscrupulous individuals. The insane persons are however culpable for torts but are not liable to criminal prosecution.

Void and voidable contracts

Void contracts are not enforceable by either of the parties or the court. This stems out from the illegality of the object of the contract. The contracts are quashed even in the absence of a disgruntled party. On the other hand, voidable contracts can be declared enforceable under certain circumstances as described by the law of the land (Anon. Contracts, 1994). In addition, if any of the two parties seek to withdraw from such a contract, the consideration received must first be refunded while ensuring equity is served to members. A contract becomes void if the contract was entered prior to the person being declared mentally incompetent by a court of law unless the contract was entered by a third party on behalf of the insane person after which the third party becomes liable to the performance of the contract. Voidable contracts occur if the person is yet to be declared insane by a court of law and at the time of entering the contract, the person did not know he was entering into a contract or lacked the mental capacity to understand the consequences of his actions. However, there exists an exception whereby a mentally incompetent party understood the consequence of his actions and went on to enter into the contract so that in such a case he becomes bound by the contract.

Legality

Contracts are only legally binding if the object of the contract is legally enshrined within the country’s laws. If the acts described by the contract are criminal or immoral, the contract becomes void. But depending on the circumstances involved a court can grant aggrieved party damages or offer to return to the original position. These circumstances could include but not limited to any ignorance of facts that can be proved, withdrawal from an illicit agreement, fraudulent contracts, or those involving undue influence.

Usury

The legal statutes in many countries describe the maximum tax that can be charged on different transactions (Anon; Capacity, Legality & Genuineness of Assent: Requirements of a Contract not dated). Usury occurs when one party unreasonably inflates the tax rates. If a contract involves a prohibitive tax it becomes void by law as it constitutes usury. These contracts are void either partly or some at times entirely. Some states have a way of imposing a limit on the interest the lending party is supposed to receive.

Licensing laws

Lack of requisite license can also make a contract void but the contract could be enforced depending on the reason for the license (Anon; Capacity, Legality & Genuineness of Assent: Requirements of a Contract, not dated. 1). It can become unenforceable if a license required to protect the public welfare is missing. On the other hand, if the license is intended to raise some revenue, the contract is enforceable. Certain professions are required to be registered with the state so that any contract made with unlicensed persons is void and thus unenforceable.

Contracts contravening public policy

Contracts between private parties that are contrary to public policy are void. All contacts are supposed to respect the public policy in place in order to protect public interests as described by the country’s law. These contracts include:

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Contracts in Trade restraint

A promise not to compete is legally said to be a promise in restraint of trade. However, the restraint is allowed if it is reasonably necessary to protect the business interest (Anon; Capacity, Legality & Genuineness of Assent: Requirements of a Contract not dated). If a contract restrains someone from engaging in any particular trade it is also said to be void. No clause can be included in a contract to permanently bar any party in the contract from taking part in a certain line of business. Any line or clause in the contract that points to that effect makes the contract unenforceable. But an agreement seeking to restrict a party from engaging in a certain line of business within a certain distance or a geographical area over a certain period of time is deemed valid (Anon; Contracts, 1994). This is meant to protect the goodwill of the contracting party. As a rule, if the consideration or any subject matter of the contract is illegal, the contract is declared void.

Unconscious contracts

These are contracts that disadvantage one party at the expense of the other. They are those that are burdensome to one person while placing undue benefit to the other party. The unconscionability can either be procedural or substantive. Procedural unconscionability occurs when one party to the contract lacks or is denied the opportunity to make informed choices regarding the contract as a result of ineligible written content, incomprehensible language, limited opportunity to read it, or lack of bargaining power by one party.

Conclusion

A contract is a legally binding and enforceable agreement between two or more competent parties to perform a certain task for a consideration defined by the contracting parties. The consent made to a contract must be genuine for a contract to be termed valid. Failure to meet this requirement makes the contract void and thus unenforceable. Contracting capacity is the legally defined minimum mental capacity needed for one to enter into a contract and be bound by it. The legality of the contract means that a contract can only be legally binding if the object of the contract is legally enshrined within the country’s laws.

References

Anon. (2010). Capacity, Legality & Genuineness of Assent: Requirements of a Contract. Web.

Anon. (2010). Capacity. Web.

Anon. (1994). Contracts. Web.

Business dictionary. (2010). Contract: definition. Web.

Lectlaw library, (2010). From the ‘Lectric Law Library’s stacks Contract Basics, Web.

Steinberger, J. (2007). Legal Issues: Is this contract valid. Web.

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