Essential Elements for Valid Contracts
MBA, BBA (Hons), FCMI (UK), MCIM (UK), Member of AMA (USA). MSLIM, MIM (SL)
On successful completion of this topic you must be able to
* Understand the essential elements of a valid contract in Business Context
Contracts that meet all legal requirements are valid and enforceable, which means that either party can hold the other party responsible for his or her agreement.
1. Offer and Acceptance
To have a valid contract, there must be a meeting of the minds (mutual assent), nominally evidenced by an offer and acceptance.
An offer is made by an offeror and expresses that person's ...view middle of the document...
It is a legally
binding relationship between two or more people that is enforceable by law.
Essential Elements of a contract( Must be learned)
4. Intention to contract
5. Capacity to contract
6. Consent to contract
7. Legality of form
8. Legality of purpose
Offer: An offer is a proposal to give or do something and, when accepted, there is said to be an agreement. It must be clear and may be implied by conduct e.g. taking goods to the checkout.
Acceptance: This is a positive unqualified assent to all terms of the offer e.g. a house
buyer makes an offer of price for a house and seller is happy to accept.
Consideration: This refers to whatever is exchanged between the parties.
-It must be real
-It need not be adequate
-It must be legal
e.g. The staff at the Beckham wedding signed a contract of silence in which the consideration was agreed at a €1. This was never paid which means a valid contract did not exist.
Intention to Contract: The Person must want to create legal relations. Therefore the parties signing a contract must know that they are entering a legal agreement that cannot be broken
Capacity to contract: This is the power of a natural person to enter into a contract. The following parties do not have the capacity to enter a contract.
1. Minors- people under 18 except for necessities e.g. food
2. Persons under the influence of alcohol or illegal drugs
3. Persons of unsound mind.
Consent to Contract: A person must enter into a contract of their own free will.
There should be no use of force or lies. e.g. a groom only married his pregnant wife after he was threatened by her father. One month later the marriage contract was cancelled.
Legality of Form: This refers to the manner in which the contract is made. It can be oral ( simple contract) or written. E.g. when buying a house a contract must be written.
Legality of Purpose: This means that legally binding contracts can only be for legal transactions.
E.g a judge will not award compensation to a bank robber whose getaway driver did not show up as agreed!!
NB: Invitation to treat is not the same as offer- An invitation to treat invites a person to make an offer to buy...