A Contract Is a Legal Promise - Essay Example

Contract Law Introduction A contract is a legal promise that is made between two or more parties, usually two, and it is binding under the law. The contract is formed by five elements which are offer and acceptance, intention, certainty, capacity and consideration. These are the requirements needed to create a contract under law which can be claimed in case of disagreement or breach. Exceptions may however, always be present as contract is known as an agreement, not a piece of paper. Explain the importance of the essential elements required for the formation of a valid contract The offer and acceptance is the element which initiates the contract. It says that there must be an offer made by one party and the other party must have accepted it. A contract is usually considered binding once the acceptance is made to the offer and communicated to the offeror. The rules apply to the negotiations that have been made till that point to know to what extend are the parties obliged to fulfill their promises. There is no halfway through, the negotiations will either be binding in the contract or not binding at all. An offer is communicated when the offeror indicates the terms on which he wants to make the offer such as the price of the goods, and gives a clear indication that he intends to be bound by those terms if accepted. Acceptance means that the offeree has unconditionally accepted all the terms of the contract put by the offeror (Andrews, 2011, p. 7). The second element of the contract is that the agreement made under offer and acceptance must not have vague or incomplete negotiations. The agreement must be certain to make sure that the contract is binding. For example when the offeror makes an offer saying that the salary will be mutually arranged between us, the courts hold no agreement between them since the agreement was not certain between them. Some of the factors that affect the certainty of a contract are provisions for clarification, the terms implied by statutes and the previous course of dealings. If there is a provision given to clear the terms later then the agreement will be binding. Secondly, if there are some terms that are implied by statutes though not being agreed by the parties, the contract will be binding. Thirdly, if there are some terms that are understood due to the previous dealings between the parties, the contract will be binding (Harriman, 2009, p. 13). The third element is the intention to create legal relations with the other party. If there will be no intention the courts will consider that no contract is valid between the parties. However if to the onlookers the parties seem to be intending to create legal relations with each other than the fact that one had secret reservations will be invalid. The intention to create legal contracts among each other can be divided into social and domestic agreements and commercial agreements. It is usually considered that domestic and social agreements are not made to be legally bound on the parties whereas the reverse is applied for the commercial agreements where it is held that the agreements will usually be on the grounds of legal intention (McKendrick, 2012, p. 286). The fourth element is capacity which holds the principle that there are some people who cannot be categorized to make legal agreements. These people have limited powers to make contracts with others and these are imposed by law. Such people may be minors or people with mental illness and drunkenness. Contracts may be made between two groups of people and not necessarily between individuals. These groups may be companies, corporations or local authorities. In these cases, the powers to create legal agreements with these companies will be dependent on the type of corporation it is (Collins, 2003, p. 24). Lastly, a contract is not binding unless it is supported by consideration. This means that each party should give something in return of what is gained from the other party. So in order to claim to the courts that the other party holds a promise for you, you must also prove that you have given something in return for that promise. Consideration may be a thing or a service, but usually it is monetary. An agreement without consideration is merely a promise which is not enforced by the law. The impact of different types of contract Some contracts may be oral, written or through electronic communication such as e-mails and faxes. These contracts hold different specifications for their binding nature as implemented by the courts. Some contracts may be face-to-face between the parties. The law does not specify that a contract has to be in written form, and thus oral contracts exist but they are often assumed by the courts as being binding because legal intention is present. Although it might be difficult to prove later what has been or was been decided orally earlier, it is always an advantage to put the contracts in writing (Macdonald, 2007, p. 2). The written contracts are simply binding by the courts and all the terms mentioned in them are considered to be accepted once it is signed by both the parties. There may be some cases of misrepresented terms or mistakes in the contracts but they do not make the contract void. Furthermore, written contracts may be binding even without the complex formalities of the contract and it becomes easier for the parties to hold the point at which disagreement has been made (Manuel, 2011, p.12). There are also contracts that are made through electronic communication, these contracts are held binding under the Electronic Communication Act 2000 which allows the contracts to be created through electronic communication devices. There is also legal recognition of the electronic signatures to make sure that the terms are binding and the contract is valid (Stone, 2009, p. 38). Terms in contracts with reference to their meaning and effect The terms of a contract describe the duties and obligations that each party assumes under the agreement. These terms are: Express terms: these are those terms that are put into the contract by the parties and these are terms that are binding to follow. The express terms may be oral or written. Implied terms: along with the terms put by the parties, there are some terms which are implied by the courts. These terms are binding to follow and they can be terms implied by fact, custom, law or by trade usage (Baker, 2011, 56). Conditions: a term which is an important one in the sense that a breach of it would provide some consequences for the innocent party, will usually be regarded by the courts as a condition. When a condition is breached, there will be no further performance of the contract and the innocent party can sue for damages. Warranties: it is a contractual term which can be broken without any serious consequences. If a warranty is breached, the innocent party can sue for damages but the contract does not become void. Innominate terms: these are intermediate terms which say that when they are breached they can either have high consequences or low ones. Of the consequences are higher, it will be a condition, if they are lower it will be termed as a warranty. Exemption Clauses: some terms are considered so unfair for one party in the contract that the courts prepare to intervene and prevent an injustice. Exemption clauses cover the limitation clause and the exclusion clause. The limitation clause means that one party has limited the liability of the breach from them in order to pay the least damages. Whereas exclusion clause is where the clause seeks to exclude all liability for certain breaches (Lawson, 2011, 92). Unfair terms: a term which has not been individually negotiated is regarded as an unfair term if contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer (Willett, 2007, 74). Conclusion: Thus, a contract is legal promise made by two or more parties. It has to have the elements of offer and acceptance, certainty, legal intention, capacity and consideration. The types of contracts may be oral, written or through electronic communication and the formalities of each vary as per their characteristics. The terms of the contract are important as they may decide the intensity of the breach and the damages to be paid. References Andrews N. 2011. Contract Law. UK: Cambridge University Press. Baker R. 2011. Implied Terms in English Contract Law. UK: Edward Elgar Publishing Collins H. 2003. The Law of Contract. UK: Cambridge University Press. Harriman E. 2009. Elements of the Laws of Contract. UK: General Books Lawson R. 2011. Exclusion Clauses and Unfair Contract Terms. UK: Sweet & Maxwell Macdonald E. 2007. The Law of Contract. UK: Oxford University Press Manuel K. 2011. Contract Types: An Overview of the Legal Requirements and Issues. UK: DIANE Publishing McKendrick E. 2012. Contract law: text, cases, and materials. UK: Oxford University Press Stone R. 2009. The Modern Law of Contract. NY: Taylor & Francis Willett C. 2007. Fairness in Consumer Contracts: The Case of Unfair Terms. UK: Ashgate Publishing Read More