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Elements of a Contract

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Introduction

A contract is an agreement voluntarily entered into by two parties or more, each of whom intends to make a legally enforceable obligation among them.  A contract is formed when the parties in a transaction make a legally enforceable promise.

Offer

It can be defined as the willingness of entering into a bargain which is meant to justify a different party in realizing that its’ assent to the bargain is invited. There must be a clearly stated offer to do something. An offer will become invalid under any of the following circumstances: withdrawal of the offer before it is accepted, when the acceptance time expires, and after a reasonable time of the offer   

Acceptance

Acceptance can only be made on what is offered and exactly as it is offered without changing the terms of the offer. Where new terms are suggested, it is considered as a counter offer, which can be accepted or rejected. Usually, there may be a number of offers and counter offers before an agreement.  It does not matter who makes the final offer, negotiations come to an end when an offer is accepted by making the terms and conditions of the contract.

Invitation Treat

This is just the act of willingness to enter into a negotiation.  It cannot be accepted to become a binding contract since it is not an offer. There is no agreement that is created when there is an acceptance of an invitation to treat; hence, it is just a part of preliminaries of negotiations. For instance, invitations to treat are advertisements and lists of prices.

Legal Consequences /Purpose

The objective of a contract entered into by parties must be for a legal purpose. That is, the contract must be legally binding and the agreement can be enforced by law. For example, a contract to distribute drugs illegally is not considered as a binding contract since the purpose for its existence is illegal.

Consideration

Consideration is what one party gets in return for what the other party will perform or receive. For any contract to be binding there must be a consideration. This is where one party (promisor) promises to perform a duty in return for a promise from the other party (promisee) to provide a benefit, some right, interest, or profit. Therefore, a consideration consists of either a benefit to the promisor or the promisee.

Competent Parties

This element requires that the contracting parties must be competent and have the authority to enter into a contract (Collins,2003).

Information That Must Be Included In a Contract

Names of the parties of the contract

Terms and conditions of the contract

The agreement which needs an offer and acceptance

Considerations like money

Obligations of each party

Expected or duration of the agreement if not permanent

Sources of Law Governing a Contract

The Common law is a law developed by judges in court decisions. In many jurisdictions, contract law is not arranged into a systematic code; therefore, the primary source of contract law is the common law also known as the case law.

Another source if the Uniform Commercial Code (UCC) developed under National Conference of Commissioners on Uniform State Laws together with the American Law Institute. It is a comprehensive code covering most issues of commercial law. In American Law, it is generally viewed as the most important development. The Restatement published by the American Law Institute provides judges and lawyers with the guidance on the general principles of the common law. Restatement of Contracts has got no legal force. However, it has highly persuasive authority. The UNIDROIT Principles of International Commercial Contract is not binding, and provides a highly persuasive authority just like the Restatement. It provides general rules for the international commercial contracts.

The Uniform Electronic Transactions Act (UETA) on the other hand has no effect on that basic contract doctrine but it governs the use of electronic communication. It hasbeen adopted by most states. It affects “transactions in businesses, commercial or government affairs”. Therefore, it does not affect contracts between family members or non-profit making institutions.

Conditions for an Offer to Be Valid

In a contract, an offer is the first half of a mutual assent that is needed for a contract to be valid. According to Jeffrey A. Helewitz, mutual assent shows that the parties have agreed to the same terms at the same time. The last half is the acceptance of the offer. Contracting parties must have a mutual understanding to the contract coverage (Blum, 2007 ). For example, in a contract to sale a 'Cadillac', the buyer thinks he will get a car while the seller knows he is contracting to sell a horse. There is mutual understanding, and the contract will likely be held unenforceable by law. Therefore, the parties should have a clear and definite understanding of what each is expected to do or perform to make the contract valid and binding.

There are several requirements for an offer to be valid. First, there must be two or more parties: the ‘the Offeror’ and ‘the Offeree’. The offeror is the party that makes a proposal to the offeree.  In this case, the offeror must have the intention to enter into a contract, the offer must be advertised to the offeree and the terms must be certain and definite.There must be a contractual intent.  All the requirements of the proposal must be considered in determining whether the contractual intent existed. In order for it to be enforceable by law, it must reflect, reasonable person that the offeror had the intent of making an offer.

On the other hand, there must be communication to the offeree through the use of effective means. According to Helewitz, communication can be written, oral or even mechanical. It is the responsibility of the offeror to decide on the method he/she uses to communicate an offer. However, in the sale of real estate or agreements that lasts for a year or more, legal contracts must be in writing. For an offer to be valid there must be certainty and conviction of terms. For the terms of a proposal to be considered definite and certain in lawsuit; the considerations of the offer must be stated, (Helewitz, 2010). In many legal contracts, money is commonly used as consideration. However, it can be anything of value including services or goods. Next, the consideration’s subject matter must be described specifically, that is the amount of money, exactly the type of services or items. The parties involved must also be described specifically. Lastly, the time of performance must also be clear and defined.

Parole Evidence Rule

In contract cases, it is a substantive common law rule that prevents a party to a written contract from providing extrinsic evidence that vary or adds to the terms that are written in the contract and seems to be whole.

The Nature of Assignment of Rights

In a bilateral contract, there is corresponding rights and duties. That is one party has a duty to perform while the other one has a right to require for the performance. Therefore, assignment is the transfer of contractual rights to a third party. In a contract, assignment of rights is the full transfer of rights to get the benefits accumulating to one of the parties that are contracting.

Assignment of rights depends on a number of factors, especially the contract language. Some may have a clause that prohibits assignment while others may require one party to consent to assignment.  For example, Tom got into a contract with a dairy to deliver a bottle of half-and-half to Tom's house on daily basis. The dairy later assigned Tom's contract to another dairy, and—given that Tom is notified of the change and continues to get his daily half-and-half--- his contract is now with the new dairy. It is, therefore, not always that assignments will relive the assignors’ liability. This is so since some contracts can contain a guarantee that regardless of an assignment, the initial parties or one of the parties should guarantee performance.

Assignment of a contract will not be enforced under certain circumstances. First, if the contract prohibits assignment. The second condition is when the assignment materially alters what is expected under the contract. Finally is when the assignment violets the law or the public policy. For example in this case; Skeate vs Beale (1840) 11 Ad & El 983

A threatened tenant with the levying of distress by his landlord because of the rent owed, promised to pay some immediately and the balance within a month&’s period. The tenant failed to pay the balance, as agreed; therefore the landlord brought an action for the balance. The tenant pleaded that the distress was wrongful in that a smaller sum only was owed. He had consented to the agreement since the landlord had threatened to sell the goods immediately unless the agreement was made. This plea of duress was declined. (Philip H. Clarke, 2007)

The Delegation of Duties in the Assignment

In some situations, a party may decide to get someone else to fulfill its duties instead of assigning the contract. If a party to a contract uses another person ‘delegate’ to perform its obligations on its behalf, the delegator will however remain liable to the other contracting party in case of any default in performance.

To prohibit any contracting party from delegating their responsibilities as per the contract, the contracting parties should include an effective specific language in the agreement. For instance, they may use a clause that state “Neither party shall assign or delegate its right.” Delegation can also be prohibited in a case by placing special trust in the obligor. That is where  the performance of the obligor is based on personal skills or talent, and where the performance by a third party will differ materially from what is expected by the oblige.

Impacts on Business Practice and the Costs of Operating Business Organizations

There are massive agreements between businesses and individuals in a business environment. Most businesses prefer to use written contracts in their operation despite the fact that they can use oral. This is basically because both parties are provided with legal documents indicating the requirement and expectations of both parties and the solutions in case of default. Contract usually represents a basis that business organizations use to safeguard their resources since they are legally enforceable by law.

Businesses normally use contracts to manage and ensure that optimal levels of services are maintained or their competitors have no access to specific economic resources. This is achieved through inclusion of some negotiation processes with various terms and conditions, under which each contracting party must abide. Another impact is that it limits obligations. Businesses uses contract to ensure that there is no single work accomplished without compensation. This is so since in a service contract, the specific duty that an organization will perform in a contractual agreement is clearly outlined. They usually include information about prices for each service and the frequent of performance.

Contracts and agreements also enable businesses to enforce non-compete agreements. This agreement prohibits other businesses or individuals from supplying products or services in a particular economic market place. This also promotes the production of unique goods or services to consumers. Under the cost of operation, contracts enables project managers to pass off certain project aspects liability  to the contractor, thus, the business cannot be held directly liable for the defaults of duties not performed. On the other hand, the contract may specify the way the contractors will hire and pay for subcontracting, hence, limiting the additional claims by workers on the company.

Another impact on the operational costs is the creation of room for price and service negotiations. Management of any business is always concerned with the management of cost to minimize expenses. Working with a contractor is one of the best ways of minimizing expenses and reducing prices through price negotiations for a particular contract. The more cost can be minimized, the more impact the revenue realized and hence the more successful a business will look.

Contracting is also beneficial to consumers. This is because the relationship between a firm and its consumers is essentially contractual. When an individual buys an item, he or she has entered into a “sales contract” with the firm voluntarily. Contracts and agreements provide businesses with the chance to enforce non-compete agreements. This promotes production of unique goods or services to consumers. This as well ensure efficiency and effectiveness in the production of goods and services.

Conclusion

It is always important to understand the legal requirements of a contract, commencing with the offer legality whenever one is involved in a law suit. The elements necessary for contractual offer are open for interpretation even though they are only a few. It is always advisable to consult an attorney about issues concerning a contract.  

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