Business Law

BUSINESS LAW QUESTION: Critically consider the importance of making a valid offer in forming a contract. A contract can be defined as a legally binding agreement or exchange of promises between parties involved. The term "party" can mean an individual person, company, or corporation. There are at least two parties involved, one of them is the offeror and another one is the offeree. The agreement will create rights and obligations of the parties, that can be enforce in the courts. If any of the parties act against the contract, breach of contract will occur and the remedies will have to be provided. Great contract will have the terms of enforceability, an offer, acceptance, consideration of exchange, and clear terms without ambiguity and is signed properly by parties involved. While weak contract include verbal agreements or contract drawn up by parties in direct violation of state or federal laws. There are seven important elements of a valid contract. The first one is the agreement, consisting of an offer and acceptance. Sometimes it also called as “meeting the mind”. This is the fundamental part of the contract because without it the parties might not be able to be bind to the contract, which did not want or intend to be the party to the contract. An offer is an expression of the willingness of the parties involved towards the contract made which shall become binding for the offeror if it is agreed by the offeree. All the parties involved must agree on all the major issues. The other parties might want to think for a while before accepting the other party’s offers. Delaying and revoking an offer may lead to confusion and conflict. The second is the consideration by parties involved. Consideration is the “thing of value” being exchanged that is often promise to something in the future for each other parties involved, such as a promise to perform job or promise to pay for a job. If one party makes a promise and 1

the other party offers nothing in exchange for the promise, the promise is void and unenforceable because of the lack of consideration. Three rules that govern consideration is, consideration must be sufficient, but need not be adequate, it must not be from the past and it must be move from the promise. For example, A promises to pay an amount of money to B for cleaning his yard. When B completed the cleaning activities, he asks for the payment. In this case A must pay B as like what he has promise to him. The third elements are the intention to create legal relations. Intention to create legal relations means that the parties must intend the agreement to be legally binding and legal consequences. The agreement was divided into two categories that are the social and domestic agreement and the business agreement. Domestic and social agreements are unenforceable and not legally binding. This includes agreement among family members, friends and colleagues. For example, the case of Balfour v Balfour, a case of a husband and wife and Jones v Padavatton, a case of a child and parents. However, in business and commercial agreement, the parties involved must intend to create legal relation in making the contract. There must be a clear and explicit statement for this kind of agreement to be succeeded. For example, the cases of Rose and Frank Co v Crompton Bros Ltd and JH Milner v Percy Bilton. Next is the form. Generally, certain formality that is writing form must be apparent. If a party signed a written contract, then the party is bound to the contract terms whether they had read the contents of the contract before they signed it or not. However, informal exchange of promises can still be binding and legal as the written contract. Verbal contract is the contract that using words, spoken or written form. The fifth elements are the capacity of the parties involved. Capacity means both parties must have the necessary mental capacity to understand on what they are doing in order to enter into the contract. The common law stated that anyone has the right to enter a contract except 2

some group who faces some barriers in entering the contract because of they are considered as having the lack of necessary capacity. These groups of people are the young people who are still under age of eighteen, except they are accompanied by an adult who act as their behalf. For example, their father or nearest relatives. Another group of people is who have mental impairment including intellectual disability because they will not be able to understand the contents of the contracts and some parties might take advantage of their disability. The people who are under the influence of drug and alcohol are also involved in this group of people. However, if they still aware that they are involving in the contract, the capacity of the contract will still exist unless the other party takes advantage of their weaknesses. The sixth elements are the consent where the agreement between parties must have been decided freely without interruption. The consent to enter the contract can be affected by a number of issues such as undue influence. Undue influences occur when one party influence over the other and this can be seen that the weaker party cannot be said to have entered the contract voluntarily. Mistakes occurred when the parties agreed to different things or they have different understanding over the contract. The victim can claim a remedy for breach of contract if the contract considered being valid. Other issues are misrepresentation, unconscionable conduct and dures. The last elements are legality of the contract where the contract must have been made for legal purposes and not against public policy. The contract is void if it is made for any illegal purposes. The law will not enforce any illegal contracts. A void contract was said as never exist, so there are no contractual rights or obligations. A voidable contract may be valid but the weaker party may be able to avoid the contract. The contract can be void if it is lack of agreement, lack of consideration or illegality. An illegal term can be removed from the contract if the remaining terms of the contract are sufficient to form a valid contract. 3

The elements of a valid offer are important to ensure that the contract is enforceable in court. The existence of all the seven elements in the contract will enable the contract to be valid. Valid contract will allows any party involved to claim for any remedies or to perform the breach of contract if any party that involved in the contract, broke any agreement that has been made. If there is any one of the elements are absent, the contract will be invalid and are not enforceable in court. As a conclusion, the seven elements of a valid contract act as a complementary to a perfect contract. The elements allow the contract to be enforceable in the court and both parties can take advantage from it. The terms of contract must be definite and certain because equity cannot be expected to enforce either an invalid contract or one that is unclear in its terms that equity cannot determine exactly what it must order each party to perform. It would be unjust for the court to force the performance of the contract according to the ambiguous terms interpreted by the court. This is where the elements of a valid contract play it roles that are to ensure the contract to be valid and be enforceable by law.

References: •

http://www.wisegeek.com/what-is-a-contract.htm

•

http://www.lawteacher.net/contract.htm

•

http://www.rurallaw.org.au/handbook

•

http://www.answers.com/topic/contracts-legal-term?cat=biz-fin

4