What Is an Essence of Contract?

An essence of contract is the key condition on which a contract is based. Violation of this condition is grounds for rescission, where the other party can break the contract without penalty because it has already been breached. It is also possible to sue for damages when the essence of contract is not respected. This differs from a warranty, a clause in a contract that doesn’t change the material meaning so substantially that the other party can withdraw if it is broken.

Conditions in a contract can be express, specifically spelled out in the terms, or implied, generally accepted under the law. In an insurance agreement for a vehicle, for example, the insurer expressly agrees to cover the vehicle for a specific amount of money. The agreement may imply that the contract holder has an insurance interest in the vehicle. If there’s an accident that results in a claim and the person who owns the policy doesn’t actually own all or part of the car, the insurance company does not have to pay out, because the policyholder violated the essence of contract.

Contract law can get extremely complex. Basic contracts with reusable boilerplate are available for many activities, like renting houses and buying real estate. Both parties should read the contract carefully to make sure they understand it. Even in a routine transaction, it is critical to know which conditions are part of the essence of contract. Failing to comprehend these could mean that a party breaches the contract without being aware, or doesn’t understand the ramifications of violating the agreement.

For more complex and delicate transactions, an attorney may draft a new contract. Both parties have the right to review the document and make sure the essence of contract is clearly understood, along with penalties for any breeches. If there are problems or questions, they are typically addressed before the contract is signed. Once a legal agreement is created with signatures on a valid contract, both parties are responsible for upholding their part of the essence of contract.

When a contract goes to court because a party has broken it or wishes to challenge some element, there may be a discussion about the essence of contract. Attorneys can argue about the precise nature of the contract and the specifics of the conditions. Loopholes may make it possible to avoid penalties for breach of contract or to negotiate a new agreement.