Law Of Contract

Formation Of a Contract

 

A contract is an agreement reached between two or more parties which is legally enforceable when executed in accordance with specific requirements. Contracts should be project specific and reflect the agreement between the parties. Contracts are obviously a key part of every business and it is therefore fundamental that all parties to a contract understand the terms included in a contract and the rights and responsibilities of the parties under that contract.

Every contract should have:

• -Offer
• -Acceptance
• -Consideration
• -Intention to create legal relations
• 
  

'Acceptance

As a general proposition of law, the acceptance of the offer made by one party by the other party is what creates the contract. This acceptance, as a general rule, cannot be withdrawn, nor can it vary the terms of the offer, or alter it, or modify it. To do so makes the acceptance a counter-offer. Though this proposition may vary from state to state, the general rule is that there are no conditional acceptances by law. In fact, by making a conditional acceptance, the offeree is rejecting the offer. However the offerer, at his choosing, by act or word which shows acceptance of the counter-offer, can be bound by the conditions tendered by the offeree.

Consideration

Consideration for a contract may be money or may be another right, interest, or benefit, or it may be a detriment, loss or responsibility given up to someone else. Consideration is an absolutely necessary element of a contract. As a word of caution, it should be noted that consideration has to be expressly agreed upon by both parties to the contract or it must be expressly implied by the terms of the contract. A potential or accidental benefit or detriment alone would not be construed as valid consideration. The consideration must be explicit and sufficient to support the promise to do or not to do, whatever is applicable. However, it need not be of any particular monetary value. Mutual promises are adequate and valid consideration as to each party as long as they are binding.

Intention to create legal relations

It is a basic requirement to the formation of any contract, be it oral or written, that there has to be a mutual assent or a "meeting of the minds" of the parties on all proposed terms and essential elements of the contract. It has been held by the courts that there can be no contract unless all the parties involved intended to enter into one. This intent is determined by the outward actions or actual words of the parties and not just their secret intentions or desires. Therefore, mere negotiations to arrive at a mutual agreement or assent to a contract would not be considered an offer and acceptance even thought the parties agree on some of the terms which are being negotiated. Both parties must have intended to enter into the contract and one can not have been misled by the other.

offer

An offer can be oral or written as long as it is not required to be written by law. It is the definite expression or an overt action which begins the contract. It is simply what is offered to another for the return of that person's promise to act. It cannot be ambiguous or unclear. It must be spelled out in terms that are specific and certain, such as the identity and nature of the object which is being offered and under what conditions and/ or terms it is offered.

Terms of Contract

Parties to a contract are bound only by its terms, not by other statements made in pre-contract talk. If inducements were promised, they can sit alongside the main contract as a “collateral contract”. Contracts will always contain different types of terms, with “conditions” being more important than “warranties”. It’s possible to have a term that excludes one party from responsibility, but the courts generally view exclusion clauses as unfair.

Breach Of Contract

Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance.

Void/illegal contracts/agreements

What Are the Differences Between a Void Contract and a Voidable Contract?

When dealing with contracts, the terms "void" and "voidable" are often confused. Even though these two contract types seem similar, they are actually completely different.

A contract that is "void" cannot be enforced by either party., The law treats a void contract as if it had never been formed. A contract will be considered void, for example, when it requires one party to perform an act that is impossible or illegal.

A "voidable" contract, on the other hand, is a valid contract and can be enforced. Usually only one party is bound to the contract terms in a voidable contract. The unbound party is allowed to cancel the contract, which makes the contract void.  

The main difference between the two is that a void contract cannot be performed under the law, while a voidable contract can still be performed, although the unbound party to the contract can choose to void it before the other party performs.

What Are Some Examples of Void and Voidable Contracts?

Void contracts are unenforceable by law. Even if one party breaches the agreement, you cannot recover anything because essentially there was no valid contract. Some examples of void contracts include:

• Contracts involving an illegal subject matter such as gambling, prostitution, or committing a crime.
• Contracts entered into by someone not mentally competent.
• Contracts that require performing something impossible or depends on an impossible event happening.
• Contracts that are against public policy because they are too unfair.
• Contracts that restrain certain activities.

Voidable contracts are valid agreements, but one or both of the parties to the contract can void the contract at any time. As a result, you may not be able to enforce a voidable contract:

• Contracts entered into when one party was a minor. 
• Contracts where one party was forced or tricked into entering it.
• Contracts entered when one party was incapacitated.