Five elements that make a contract valid (2024)

In our daily lives, we frequently engage in contracts and agreements with others, which can significantly impact our finances either positively or negatively. In this article, I aim to provide insights into five (5) elements that make a contract valid in order to avoid entering into invalid ones.

What is a contract?

A contract simply represents an understanding between two or more individuals where the stipulated terms and conditions are binding on all parties. For example, a situation whereby a business organization asks a laborer(s) to build a two-story and that they would be paid on a daily basis is a good illustration of a contract.

Contracts form the backbone of business and legal agreements, governing transactions ranging from simple purchases to complex business deals. For a contract to be legally binding and enforceable, it must contain five fundamental elements. Whether you're a business owner, a consumer, or a legal professional, understanding these elements is crucial to navigating the world of contracts effectively, and they are:

1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations
5. Capacity

Offer:

An offer is a proposal by a party given to another party to enter into a contract. This offer must be accepted by the other party for there to exist a contract. The proposal is usually made in exchange for the other party’s performance.

Acceptance:

An acceptance is an agreement to the terms and conditions of an offer. It refers to when the other party is willing to comply and accepts all terms. Acceptance can either be implied by express terms or implied by conduct. An implied express term occurs when an agreement is formally recorded in written or typed form and is signed by the contract parties. On the other hand, implied conduct arises when the contract parties actively fulfill their contractual duties through their actions and behavior.

Consideration:

Consideration is something of value that is exchanged between the parties to a contract. Each party must receive something of value in order to be bound by the contract. Consideration can be in the form of money, goods, services, promises to do or not to do something, or any other valuable benefit or right. For example in a simple contract for the sales of a car, consideration will be the money the buyer agrees to pay for the cost of the car.

Intention to create legal relation:

It refers to the intention of parties entering into an agreement to be legally bound by that agreement. In other words,when two more parties make a deal, they must have a genuine intention for their agreement to have legal consequences and enforceable by law. For example, if two compaines sign a contract for the sales of goods, their intention is typically to create a legal binding agreement. This means that if one party fail to fulfill it obiligations under the contract, the other party can seek legal remedies.

Capacity:

The parties to a contract must have the legal ability to enter into the agreement. This means that they must be of legal age and sound mind, and they must not be under any legal disability that would prevent them from understanding the terms of the contract . For instance an infant can not enter into a contract because he or she has no capacity at that age which is below the proper age of 18 years and above. Also, those of unsound mind can not enter into contract because they lack the capacity to understand. Eg madness, alcoholism, and mental degeneration are all examples of unsoundness. A contract with this set of people is said to be invalid.

In conclusion, contracts are the cornerstone of modern commerce and legal relationships. To be legally binding and enforceable, contracts must encompass the five essential elements: offer and acceptance,consideration, capacity, and intention to create legal relations . Failing to meet any of these elements can result in the contract being void or unenforceable.