Basis of contract: Overview, definition, and example
What is the basis of contract?
The basis of contract refers to the fundamental principles or foundation upon which a contract is formed and legally enforceable. It typically includes the mutual agreement, consideration (something of value exchanged), the intention to create legal relations, and the terms agreed upon by the parties involved. The basis of contract ensures that the agreement is valid and binding, providing the legal framework for both parties to fulfill their obligations. Without a clear basis of contract, the agreement may not be enforceable in court, and the parties involved may not have legal protection if disputes arise.
Why is the basis of contract important?
The basis of contract is important because it establishes the validity and enforceability of the contract. By ensuring that the agreement is built on mutual consent, consideration, and the intention to create legal relations, it provides both parties with legal rights and obligations. Understanding the basis of a contract helps to prevent misunderstandings and disputes between the parties, as it defines the key elements and expectations from the start. It also helps courts assess the contract’s legality if either party fails to meet their obligations. Without a clear and lawful basis, a contract may be void or unenforceable.
Understanding the basis of contract through an example
For example, two companies agree to a partnership where one company will supply raw materials and the other will manufacture products for sale. The basis of the contract involves mutual consent (both parties agree to the terms), consideration (one company provides raw materials while the other provides the manufactured goods), and the intention to create legal relations (both parties expect to be bound by the agreement). If one company fails to deliver on their promise, the contract can be enforced by law, as the basis of the contract has been clearly established.
In another example, an individual enters into a contract to lease an apartment. The basis of the contract includes the agreement between the landlord and tenant on the lease terms (such as the rent, duration, and responsibilities of each party), the exchange of consideration (the tenant will pay rent, and the landlord will provide the use of the apartment), and the mutual intention to create legal relations (both parties expect the contract to be legally binding). If the landlord fails to maintain the apartment as agreed, the tenant can seek legal recourse based on the established basis of the contract.
An example of a basis of contract clause
Here’s how a basis of contract clause might appear in an agreement:
“The parties agree that this Agreement is entered into based on mutual consent, the exchange of consideration, and the clear intention to create binding legal obligations. Each party acknowledges that they have had the opportunity to review and negotiate the terms of the Agreement, and that they voluntarily accept the obligations herein.”
Conclusion
The basis of a contract is the foundation that ensures the agreement between two or more parties is legally valid and enforceable. It requires mutual consent, consideration, and the intention to create legal relations. By clearly establishing these elements, the basis of contract provides a framework for both parties to understand their obligations, reduce the risk of disputes, and ensure that their legal rights are protected. A contract that lacks a clear basis may not hold up in court, so it is critical that the key principles are clearly defined.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.