Business Regulations: Essentials of a Valid Contract

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An agreement that is enforceable by law is known as a contract. However, not every contract turns into an agreement due to the lack of one or more essential elements of a valid contract. When preparing a contract, business regulations must be brought into consideration.

Given below are the ‘must haves’ for every contract, for it to be enforceable in the court of law.

Intention to Create Legal Relationship

All the parties to the contract must intend to create a legal relationship; otherwise the agreement will not be enforceable. In general, there is no intent to create a legal relationship in domestic agreements. Nevertheless, it is presumed that business parties intend to enter into a legal relationship until mentioned otherwise.

Lawful Object

The contract must be for a legal task. Anything announced illegal cannot be part of the contract. In addition to the task, the consideration should also be fully lawful. Partial lawful and partial illegal contracts are also not accepted in most cases.

Agreement not Expressly Declared Void

Law has declared certain agreements void, such as agreement in restraint of trade. However, there are often certain exceptions to these rules.

Proper Offer and Acceptance

There should be a valid offer and acceptance. An individual cannot make an offer to himself or herself, which is why it is important to have two or more parties to a contract.

Free Consent

The consent of both the parties must be free. If there is coercion or any other mean of forceful acceptance, then the contract will not be enforceable.

Capacity of Parties to Contract

All the parties to the contract must have the capacity to enter into a contract. Some parties, such as minors, cannot enter into a contract, which is why any contract with such parties will not be lawful.


Ambiguity is not acceptable in a contract. It is important to use clear language that explains everything and leaves no vagueness. All the parties are also needed to agree on the same thing in the same context.

Possibility of Performance

The job for which the contract is signed must be possible. For example: a contract for a new painting by a dead painter is not a valid contract because it is not possible for the dead painter to paint a new painting.

Lawful Consideration

A contract is a two-way process. Both the parties have to give or take something. Consideration in simple words is the price for the contract. Law requires consideration to be lawful; otherwise the contract will not be enforceable.

Legal Formalities

All the legal formalities should be fully completed. Some contracts are required to be in black and white, such as a contract to sell immovable property. Such contracts are not lawful until they are in writing and signed by all the parties. It is important to know all the legal formalities and fulfill them properly.

It is important for every business or individual to make sure that a contract meets all the legal requirements; otherwise, it will not be enforceable and the parties will not be able to bring it to court in case a dispute arises.

Further reading: Corporate Governance | Audit | Performance Improvement

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