Contract Terms: An Overview, Key Elements & Examples

Every business will sign contracts, and every contract they sign and enter will be unique. But there are specific contract terms that can be found in most contracts.

Elements of Contract Terms

For a contract to be legally enforceable, the contract terms must hold a specific set of elements, including:

Offer

An offer must first be extended for the contract to begin. The offer should include details of the contract and its terms and conditions.

Acceptance

Once an offer for a contract has been extended, the counterparty must accept or reject the agreement and its terms and conditions. The counterparty can accept or reject a contractual offer verbally or in writing.

Awareness

For a contract to be legally enforceable, the parties must be aware that they are entering into a new contract. The parties must recognise that the contract exists and that the agreement will tie them to contractual obligations, also called "a meeting of friends."

Consideration

For a contract to be legally binding, it must offer something of value for exchange between the parties.

Capacity

The parties entering the contract must have the capacity to understand the terms and conditions of an obligation under the contract. Parties that don't have capacity include individuals that are:

• Under the age of 18

• Suffering from severe mental health conditions

• Under the influence of drugs or alcohol

• Signing the contract under duress

• Involved in fraudulent activity

Legality  

All contracts are subject to the laws of the jurisdiction. So, depending on the country they are signed in, they must abide by these laws to justify their sufficient legality.

What is an Unfair Contract Term?

Businesses will typically enter contracts when they are buying a product or service. When the exchange happens, the parties must follow the terms and conditions settled on in the agreements. Regarding contract terms, companies are free to use the terms and conditions they deem reasonable. These terms, however, cannot be unfair.

Regulations in the UK state that one party cannot be bound by a standard term with another party if that term is considered unfair. A party has the right to challenge a contract term if they believe it is unfair, but it's usually for a court to decide if it is formally unfair.

A contract term may be deemed unfair if:

• It is contrary to the requirements of good faith, e.g., a contract term must be fairly negotiated and agreed upon with the involved parties.

• It causes a significant imbalance for one party.

Other standard unfair contract terms:

• Cancellation fees – All contracts come with a termination clause, and it usually involves a cancellation fee. However, if the termination fee allows the seller to make money from one party, it can be considered unfair.

• Alteration of goods or services – One party has the right to alter what and when they are buying without giving the other party the option to terminate the contract.

• Unbalanced rights – Contract terms give the selling party rights that you, as a consumer, cannot enjoy.

Boilerplate Clauses

Most contracts will contain standardised language and clauses. These are known as “boilerplate clauses.”

Commonly found at the contract's beginning or end, boilerplate clauses typically fall under the headings of ''general'' or ''miscellaneous''. Just because they often are found at the end of the contract doesn't mean they aren't a vital element of the agreement.

Boilerplate clauses are included within the contract to deal with the mechanics and logistics of how it works, but they will differ depending on the contract. In most contracts, they define how a conflict will be resolved.

Examples of Boilerplate Clauses

• Choice of Jurisdiction – This limits the legal jurisdiction to a specific state or country.

• Notice – How the notice should be given, e.g., contract termination

• Warranties – The involved parties agree to fulfil their contractual obligations

• Confidentiality – This prevents the involved parties from sharing any confidential information.