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The Requirements of a Valid Contract

Introduction

Business environment requires a sound legal system which defines the relationship that exists between different parties. According to Whincup (2006, p. 89), a business unit cannot operate in an environment that lacks a clear legal system which would help dictate the way business units should relate. This scholar says that it is important to develop laws that would guide how a business entity would relate to its customers, employees, the government, and other business units among other entities. It is important to note that most of the business units are entities different from their owners. This means that they can enter into a contract on their own, sue or be sued, and make other transactions as independent entities. To achieve this, there is need to ensure that there are laws put in place to protect firms against other firms or institutions which may consider taking advantage of them unfairly. Business contracts are the most common agreements that a business unit would make. This research paper focuses on the requirements of a valid contract.

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Ingredients of a Contract

A contract refers to a legally binding agreement that a firm gets into with another firm or an individual involving a business transaction. It is an agreement that stipulates how a business unit should relate with another, and some of the consequences that either of the parties may face in case one decides to disobey the provisions of the contract. Contracts have become very important in the current business environment because they help in deterring any possibility of a partner contravening the provisions of the contract. For a contract to be considered valid, there are some elements that should be present. These elements are discussed below.

An offer is the first ingredient of a legally binding contract that should be present for the contract to be considered valid. A contract can only exist if one party has something to offer to the other party in the contract. According to Blum (2007, p. 78), an offer can be anything that is of some value to both parties, and whose value can be determined in monetary form or in any other form that is payable to the partner who is given the offer. An offer is always given when the party giving the offer is certain that it is ready to give out the product to the other party.

The second ingredient is the acceptance of the offer. It is important that an offer is accepted without any conditions that may be unfavorable to the party making the offer. When conditions are introduced, then this will be considered as a counter offer and this will force the parties involved to renegotiate the offer. Although the offer may be modified to make it acceptable to the other party, the modification must remain within the limits that are acceptable to the party making the offer. When this agreement is reached, it is expected that the other party will make an acceptance of the offer. The most common way of showing acceptance is through writing or taking actions that confirms acceptance. The third ingredient of a legal contract is the intention of possible legal consequences. A contract can only be considered to be valid if it is legally binding to both parties involved. This means that such a contract can be enforced by law if a need for this to be done arises. For this reason, there must be a clause that states the possible consequences that may arise in case either of the parties disregards the law. As Andrews (2011, p. 67) says, this clause is not meant to punish any of the parties to the contract. The clause is meant to protect both parties.

It is meant to pass a communication to both parties that this is a serious legal agreement which must be obeyed by all parties. The scholar further says that the treaty is meant to assure both parties that their interests are protected by law. This makes it easy for the parties to commit their resources without fearing a possible failure of the other party failing to meet their part of bargain.

The fourth element of a valid contract is the consideration. When one party makes an offer which is accepted by the other party, the other party must make a promise to pay for the offer. This is what is referred to as a consideration. The consideration will be made in a way that is considered equivalent to the offer made. This may not necessarily be in the monetary form. This can be in the form of agreeing to act or fail to act in a given manner that is beneficial to the party making the offer. This consideration will be a direct indication that the other party is willing to engage in the contract.

The Difference between a Contract and Invitation to Treat

According to Bar (2004, p. 76), it is important to understand the difference between an offer and invitation to treat. An invitation to treat is a prelude of a negotiation. It is an indication that a party is willing to develop an offer. As Bar (2004, p. 78) puts it, “An invitation to treat is part of the preliminaries of negotiation, whereas an offer is legally binding once accepted, subject to compliance with the terms of the offer.” This means that an invitation to treat is not a legally binding agreement and cannot be accepted unless it becomes an offer. In other world, when an invitation to treat matures, then it becomes an offer.

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Examples of Case Law that Illustrates Contract Law in Action

Contracts have been signed by various parties within the business environment or in other sectors. One of the recent contracts was signed between the world football governing body FIFA and the government of South Africa during the Football World Cup 2010 which was held in South Africa. FIFA offered the government of South Africa a specific amount of money in return for the country hosting the World Cup. The contract was successful and both parties benefited from this contract. Another example involved Adidas and DHL. Adidas signed a contract with DHL which stated that DHL will transport Adidas products from Europe to China within 30 days. According to the contract which was signed by both parties, Adidas was to make payments upon delivery of goods in China. As it turned out, DHL found a more lucrative offer with another company and committed most of its resources to this new contract. The remaining facilities could not deliver Adidas products within the agreed time. Instead of 30 days, it took DHL 45 days to complete the task. Upon completion, Adidas did not pay DHL. When DHL took Adidas to court, it was held that Adidas had no obligation to pay, since DHL contravened the agreement in the contract.

List of References

Andrews, N 2011, Contract law, Cambridge University Press, Cambridge.

Bar, C 2004, The interaction of contract law and tort and property law in Europe: A comparative study, Sellier, München.

Blum, B 2007, Contracts: Examples & explanations, Wolters Kluwer Law & Business, Austin.

Whincup, M 2006, Contract law and practice: The English system with Scottish, Commonwealth, and Continental comparisons, Kluwer, Law International Alphen.

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