Contract Law Essentials: Definition and Validity

Contract Definition and Validity Requirements

Definition of a Contract

A contract is an agreement between two or more parties which is legally enforceable when executed in accordance with requirements. An agreement will be enforced when the following essential elements exist:

• Offer and acceptance
• Intention to create legal relations
• Legality
• Possibility of performance
• Capacity of the parties
• Consent must be genuine
• Consideration must be present

All the elements must be present for a valid contract.

Remedies for Non-Performance (Schema)

Remedies available upon non-performance include:

• General remedies
• Cure by debtor of non-conforming performance
• Right to enforce performance
• Withholding performance
• Termination
  • Grounds for termination
  • Scope, exercise, and loss of right to terminate
  • Effects of termination
• Restitution
• Price reduction

Elements of Performance

Key aspects concerning contract performance:

• Place of performance
• Time of performance
• Early performance
• Order of performance
• Alternative performance
• Performance by a third person
• Form of payment
• Currency of payment
• Appropriation of performance
• Property not accepted
• Money not accepted
• Costs of performance

Direct Representation

Where an agent acts in the name of a principal, the rules on direct representation apply. It is irrelevant whether the principal’s identity is revealed at the time the agent acts or is to be revealed later. When an agent is acting in the name of the principal, its acts bind the principal and the third party directly to each other. The agent itself is not bound to the third party.

Indirect Representation

Where an intermediary acts on instructions and on behalf of, but not in the name of, a principal, or where the third party neither knows nor has reason to know that the intermediary acts as an agent, the rules on indirect representation apply. Where an intermediary acts:

• On instructions and on behalf, but not in the name, of a principal.
• On instructions from a principal but the third party does not know and has no reason to know this, the intermediary and the third party are bound to each other.

Grounds of Invalidity in a Contract

Grounds that may lead to contract invalidity include:

• Mistake (error) – grounds for avoidance
• Fraud (dolo) – grounds for avoidance
• Threats
• Unfair exploitation
• Fraud (misrepresentation)
• Infringement of fundamental principles for mandatory rules
• Unfair advantage