The law of contract

Modern business transactions are governed by the law of contracts. A legally binding pact between two parties is called a contract. A contract typically begins when an offer is accepted (Twomey, Jennings, & Greene , 2016). As a result, agreement is one of the fundamental components of a contract and consists of an offer and an acceptance. The following necessary conditions must be met in order for a contract to be deemed valid:

A proposal and a response

to intend to establish a binding relationship

Free consent of the parties is the consideration received in exchange for the products or services provided.

the ability to contract

Making an offer is the initial stage in contract formation. An offer is merely a declaration of indication of an offeror’s willingness to enter into a legally binding agreement (Twomey, Jennings, & Greene , 2016). For the offer to be valid:

The offeror must make an intention to contract – the offeror must show an intention to enter into a legally binding agreement. This can be shown through his or her conduct. The offer must be distinguished from a mere puff and invitation to treat (Gilles, 1988). A mere puff is an advertising claim that is made to lure potential customers and it is not accompanied by the intention to legally bid the maker of such a claim (wizznotes.com, 2017).On the other hand, an invitation to treat or invitation to negotiate is merely an invitation by one party to another to discuss or make an offer (Collins, 2003). For example, in an auction, the auctioneer’s request for bids is an invitation to treat. People in an auction will usually make bids and this constitutes an offer. The auctioneer might choose to accept or reject the bids. Likewise, the persons making the bid may decide to retract their offers before they are accepted. Another example of an invitation to treat is when prices of items are displayed in a shop. The prices indicated simply represent an invitation to the customers make an offer and are not offers by themselves. Similarly, in tender transactions the prices indicated are not an offer but they are solely an invitation to treat (Law Teacher, 2017).

There must be communication of the offer – the offeror must communicate the offer to the offeree. This will show an intention on the side of the offeror to contract. Conversely, the offeree cannot consent to an offer unless he knows of its existence. This simply means that one cannot accept something that does not exist (Benson, 2001).

The offer must be definite or clear (Law Teacher, 2017). An offer must be clear to both parties to a contract. It must identify the parties in the contract i.e. the offeror and the offeree, it must state clearly the object or the subject matter of the contract, and it should state in clear terms the consideration to be paid and the timeline for the offer. In case the offer is indefinite any attempt to accept the offer will not result in a contract. However, where intention exists, the court may try to clarify the terms of a contract. However, the court will not try to rewrite an indefinite offer. Example of where the court might intervene is in cases of indefinite by incorporation and implied terms.

Once an offer is made it is followed by acceptance. Unfortunately, the offer may be revoked before it is accepted. There are severally factors that may lead to the termination of an offer. The factors that may lead to termination of an offer are:

Rejection of the offer by the offeree – the offeree may discard the offer by communicating his intention to the offeror. If after rejecting the offer the offeree tries to accept it, this will constitute a counteroffer.

Revocation of the offer by the offeror – the offeror may revoke his offer before acceptance by communicating to the offeree.

Lapse of time – the offer terminates if the period indicated on it expires. However, if there is no time indicated on the offer, and then the offer will expire after a reasonable period of time (Gilles, 1988).In the event, the offer has a time limitation any attempt to accept this offer after the expiry of the stated time period will not result in a contract.

Destruction of the subject matter – the offer will be automatically terminated if the subject matter is destroyed before acceptance of the offer.

Death or incompetence – in a situation whereby either the promisor or the promisee die or become legally incapacitated before acceptance then the offer is automatically terminated.

Subsequent illegality – in case a new law that makes a previously legal activity illegal then the offer is terminated.

An offer may fail to be revoked and therefore be accepted by the offeree. Acceptance simply involves agreement of the offeree to the content of the offer (Twomey, Jennings, & Greene , 2016). The acceptance may be indicated by the conduct of the offeree. There is no particular way of expressing acceptance. However, the offeree must show that he intends to be bound by the terms of the offer (Twomey, Jennings, & Greene , 2016). The moment all the elements of a contract are present and an offer is accepted then a contract is automatically formed. After acceptance, no party can terminate the contract without the approval of the other. There are certain legal elements that must be observed in the acceptance of the offer. Legally an acceptance can be expressed by a simple “okay”, a nod of the head, writing in case of written offers and performance in case of unilateral offers. There must be total acceptance without any condition attached. If the offeree changes the terms of the offer and adds new terms then there will not be an acceptance. The offeree must accept only that which offered. The change of the terms of the offer by the offeree constitutes a counteroffer. The offeror is not bound to accept a counteroffer (Twomey, Jennings, & Greene , 2016).

Acceptance of an offer can only be made by the person to whom the offer was directed. In case a stranger accepts an offer, this will not lead to the formation of a contract. An offer can be made to a specific group of people or to the public. In a situation whereby an offer is made to a specific group, then only members of that group can accept the offer. In case of a public offer, anyone who comes across the offer may accept it. Moreover, the offer may indicate the time and manner of acceptance.

The offeror may indicate the manner and time of acceptance. In the event that the manner of acceptance is through written means acceptance by oral means will not lead to the formation of a contract. The offeror may also indicate the time period for acceptance. Any acceptances beyond the stipulated time frame automatically nullify the acceptance. Another important rule of acceptance relates to the acceptance of an offer in silence.

Normally, silence does not indicate acceptance of an offer. However, there are situations in which silence can legally constitute acceptance. In the following circumstances silence will constitute acceptance;

Acts consistent with acceptance – in case the offeree enjoy the benefits of goods or services then it is implied that he has accepted the terms of the offer and that he has decided to reimburse the offeror.

Prior dealings – in case the offeror and the offeree have prior standard dealings then silence on the side of the offeree will indicate acceptance.

Unilateral contract- this contract requires the performance of an action by the offeree. Acceptance is proved by execution of the requirement and therefore no action is required to express acceptance.

Finally, for acceptance to be valid, there must be communication. However, communication applies to bilateral contracts and not to unilateral contracts. The moment the offeror hears the word of acceptance from the offeree the contract is automatically formed. But, there are situations where parties to a contract are further apart and the only way of communication is via the mail. In such a situation, the mailbox rule will apply. The mailbox rule states that an acceptance takes effect once the offeree has dispatched to the offeror a mail via the fastest means possible. Acceptance takes effect once a properly mailed acceptance is received by the U.S postal services (Twomey, Jennings, & Greene , 2016).

In conclusion in the presence of other elements, an offer and acceptance will constitute the formation of a contract.

References

Benson, P. (2001). The Theory of Contract Law: New Essays. Cambridge: Cambridge University Press.

Collins, H. (2003). The Law of Contract. Cambridge: Cambridge University Press.

Gilles, P. (1988). Concise Contract Law. Sydney: The Federation Press.

Law Teacher. (2017, December 14). Formation of a contract. Retrieved December 14, 2017, from lawteacher.net: https://www.lawteacher.net/lecture-notes/agreement-lecture.php

Twomey, D. P., Jennings, M. M., & Greene , S. M. (2016). Anderson's Business Law and the Legal Environment, Comprehensive Volume. Cengage Learning.

wizznotes.com. (2017, December 14). The Legal Aspects of A Business. Retrieved December 14, 2017, from wizznotes.com: http://wizznotes.com/pob/the-legal-aspects-of-business/concept-of-a-contract