By Paymon Z. Bidari at Bidari Civil Defense.
Every valid contract has certain foundational elements. Here is a summary of those elements. If one element is missing, there is NO valid contract.
- Offer and acceptance
- Intention to create legal relations
- Consideration
- Legal capacity
- Illegal and void contracts
Offer and acceptance
A contract is formed when an offer by one party is accepted by the other party.
An offer must be distinguished from mere willingness to deal or negotiate. For example, X offers to make and sell to Y calendars featuring Australian paintings. Before any agreement is reached on size, quality, style or price, Y decides not to continue. At this stage, there is no legally binding contract between X and Y because there is no definite offer for Y to accept until the essential terms of the bargain have been decided.
Consideration
Consideration is the price paid for the promise of the other party. The price must be something of value, although it need not be money. Consideration may be some right, interest or benefit going to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party.
So long as consideration exists, the court will not question its adequacy, provided that it is of some value. For example, the promise to pay a peppercorn in return for the lease of a house would be good consideration. Of course, the consideration must not be illegal or impossible to perform.
Intention to create legal relations
Intention to create legal relations is the intention to enter into a legally binding agreement or contract. Intention to create legal relations is one of the necessary elements in formation of a contract. It is because, intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement. Intention to create legal relations is a motion of every contracting party must have the necessary intention to enter into a legally binding contract.
Legal capacity
Not all people are completely free to enter into a valid contract. The contracts of the groups of people listed below involve problematic legal capacity and are dealt with separately, as follows:
- people who have a mental impairment (i.e. intoxicated)
- minors;
- bankrupts;
- corporations (people acting on behalf of a company);
- government agents
- prisoners.
Illegal and void contracts
No contract may contain provisions that are illegal. For example, one cannot contract for an illegal act. Such contracts are void. Moreover, contracts that were induced as a result as fraud or (reasonable) mistake are voidable.
If you have any questions, or concerns, please contact:
Paymon Bidari
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BIDARI CIVIL DEFENSE
444 N. Harbor Blvd. Suite 200, Fullerton, Ca. 92832
Tel. 714.525.5570