UNDERSTANDING THE CORE ELEMENTS OF A VALID CONTRACT
We enter into agreements every day whether it's buying a coffee, signing up for a subscription, or even making plans with a friend. But how do you know when an agreement truly holds weight in the eyes of the law? Not all promises are legally binding. To make sure an agreement can be enforced, it needs to have a few key elements. In this post, we'll break down the essential elements of a valid contract and why they matter, whether you're signing a business deal or just making sure your arrangements stand strong
ESSENTIAL ELEMENTS OF A VALID CONTRACT
- OFFER
An offer is an expression of willingness to contract on certain terms made with the intention that a binding agreement will exist once the offer is accepted. One party must present a clear, definite and specific proposal to another party. An offer may be made either orally or in writing, or implied by the conduct of the person making the offer, namely, the offeror and the person or party to whom an offer is made to in a contract is the offeree.
However,
there are many situations in which things that look as though they may
in some way include an offer, nevertheless, do not have the same
outcome. They are generally considered as invitations to treat and
should be distinguished from offers. An invitation to treat is an
indication that a person is willing to negotiate the terms of a contract
but is not yet making a binding offer. For example: a tin of beans placed on display on a supermarket shelf is not an offer but an invitation to treat. The contract is then formed by the agreement to sell which is acceptance in this case.The famous case of Carlill v Carbolic Smoke Ball Company [1893] 2 QB 256 is relevant here. A medical firm advertised that its new drug, a carbolic smoke ball, would cure flu, and if it did not, buyers would receive £100. When sued, Carbolic argued the advert was not to be taken as a legally binding offer; it was merely an invitation to treat, a mere puff or gimmick. However, the Court of Appeal held that the advertisement was an offer. An intention to be bound could be inferred from the statement that the advertisers had deposited £1,000 in their bank "showing our sincerity"
Communicating the offer
Once we know whether a party is making an offer and is then intending to contract, we must be satisfied that the offer conforms to the rules to show whether it is a valid offer or not. The conditions for a valid offer are: the offer must be communicated to the offeree, an offer can be made to one person but it can also be made to the whole world and the offeree must have clear knowledge of the existence of the offer for it to be valid and enforceable.
Termination of the offer
Conditions for the termination of the offer:
- Acceptance of the offer by the offeree
- Rejection of the offer by the offeree
- Revocation of the offer by the offeror
- Lapse of time
- Death of one of the parties
- Non- fulfillment of a condition precedent
2. ACCEPTANCE
A valid acceptance is a statement of intention to be bound absolutely and unconditionally by the terms of the offer. For the acceptance to be unequivocal and unconditional, it follows then, that the acceptance must correspond exactly and in every detail with the offer made.
Rules of acceptance
- Acceptance must be unconditional: so a counter-offer counts as a rejection and the offer is
no longer open to acceptance, but mere enquiries are not rejections of the offer, a counter-offer if accepted forms the basis of the agreement, but not if they are of no importance to the parties. - Acceptance must be communicated: so silence is not acceptance, a unilateral offer is accepted by performance and the offer cannot be withdrawn while the offeree is still performing, if use of the post is the normal, anticipated method of acceptance, the contract is formed on posting (the postal rule), this applies even if the acceptance is never received, modern methods of communicating such as fax, e-mail and the internet cause problems in determining when a contract is formed – generally, it depends on how instant the communication is.
3. CONSIDERATION
Consideration developed as the ‘proof’ that a contract existed rather than a merely gratuitous promise. Consideration is "something of value" which is given for a promise and is required in order to make the promise enforceable as a contract. This is traditionally either some detriment to the promisee (in that he may give value) and/or some benefit to the promisor (in that he may receive value). For example, payment by a buyer is consideration for the seller's promise to deliver goods, and delivery of goods is consideration for the buyer's promise to pay. It follows that an informal gratuitous promise does not amount to a contract.
Rules of Consideration
- Adequacy and sufficiency of consideration: One of the most basic rules of consideration is that consideration need not be adequate but it must be sufficient. Adequacy is non-legal term referring to the market value of consideration given. Adequacy will be decided by the parties
themselves. On the other hand, ‘sufficiency’ is A legal term referring to consideration provided by a party to a contract that is considered valid, that is, it's real, tangible and of value in the eyes of the law. - Consideration moving from the promisee: the connection with privity: The promisee must provide the consideration. A promise can only be enforced if the person receiving the promise (the promisee) provides something of value (consideration) in return. If someone else (a third party) provides the consideration instead, the promisee usually cannot enforce the promise. For example, if A promises to pay B £10,000 if C paints A's house, and C does the work, B cannot make A pay unless B arranged for C to do the work. However, under the Contracts (Rights of Third Parties) Act 1999, a third party may sometimes enforce a contract made for their benefit, and courts are becoming more flexible on this in some cases.
- Consideration must not be from the past: The consideration for a promise must be given in return for the promise. It simply means that any consideration given cannot come before the agreement but must follow it. The rule will usually apply where one party has done a voluntary act and is trying to enforce the other party’s later promise to pay.
- Part payment of a debt can never satisfy the debt as a whole: Although there are exceptions to the rule including accord and satisfaction (where the debt is paid in a different form), and estoppel (where a party waiving rights is prevented from going back on the promise because of reliance by the other party.
Comments
Post a Comment