Essential Elements of Legally Binding Contract - Essay Example

Essential Elements of Legally Binding Contract [Name] [Professor Name] [Course] [Date] [WORD COUNT 1157] Introduction The law of contract specifies the validity, relationship and content of an agreement between two parties concerning exchange of interest or sale of goods. Put differently, it refers to a promise or set of promises enforceable by the law. For an agreement to be enforceable by the law, it has to contain four essential elements, including offer, acceptance, consideration and intention to bring legal action. This paper presents a case analysis while focusing on these key elements1. Negotiating a proper contract Offer For the offer to be valid, it must be clearly stated. This means that Michael should be advised that it is not his subjective intention or that of the other parties that the court will base on to determine the legal effects of the words or action expressed in the offer. Rather, it is the objective inference from them. His offer should be interpreted based on an objective intention. Such was determined in the case Centrovincial Estates v Merchant Investors Assurance Company.2 Therefore, the kind of offer that Michael makes should express his willingness to contract in particular terms. To conclude, Michael should give a clear offer that communicates his intention. For instance, he should clearly specify to the Mexican and Moroccan friend that he wants them to make homemade Mexican and Moroccan cuisines respectively. Consideration In order for Michael’s contract to be binding, it must be supported by the element of consideration. By consideration, it means one party makes a promise to do something in return for something of value from the other party3. This means that for Michael’s contract to be enforceable, both parties should have provided consideration or promise to do something in return for the other. Such facts were demonstrated in the case Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd.4 In sum, Michael should ensure that he promises to give something of value such as money or a service that is of benefit to the other parties, in exchange for the homemade Mexican and Moroccan cuisines from the Mexican and Moroccan friends respectively. Acceptance For the contract to be enforceable there has to be an acceptance, which evidences an agreement to the terms of the negotiation. Acceptance can be by conduct, performance or in words, as was held in the case Brogden v Metropolitan Railway Company, where the offer was accepted by performance5. This means that the Mexican and the Moroccan friends can accept the offer through starting to make the homemade cuisines respectively. They can also expressly state their agreement orally or through a written statement. Further, since there may be many offers and counter offers before Michael’s Mexican and the Moroccan friends finally make an acceptance, Michael should be advised that it is not important who make the final offer. Rather, it is the acceptance of the offer that brings the negotiation to an end6. This means that the timing of the acceptance is critical as it brings negotiation to the end. Michael should be advised that the acceptance comes at the end of negotiation7. Intention in the contract/agreement For a contract to be enforceable by the law, the parties should have intended their agreement to have legal consequences8. However, since the intention to create legal relations is presumed, Michael would not have to state expressly that he understands and intends to create legal relations. Indeed, in most commercial contracts such as the one that Michael is pursuing, the law will always presume that there is an intention to create legal relations. Such principles were discussed in the case Balfour v Balfour9. To conclude, since it is a contract of commercial nature, Michael does not have to address his intention in the contract as the law will assume there is an intention to create legal relations. Heads of Agreements between Michael and second party Heads of agreement refers to a non-binding document that detail out the issues pertinent to a tentative or uncertain agreement. In common law, the document is not enforceable by the law except for when it is adopted into a parent contract and when it is subsequently agreed upon as was held in the case Fletcher Challenge Energy v Electricity Corporation of New Zealand.10 Towards this end, the heads of agreement between Michael and the second party (Mexican friend) involve the details of Michael’s cafe, address of Michael’s cafe, details about the Mexican cuisine, the information of payment and mode of payment, the completion date of the transaction and any other special conditions that Michael and his Mexican friend have considered in their negotiation. Need for a written contract Although oral contracts are enforceable by the law, it is important for Michael to write a contract. Written contracts provide individuals with legal documents that state their expectations and how unrealised expectations will be solved. Indeed, the written contract can serve as a tool that Michael uses to safeguard his interests in case his Moroccan and Mexican friends fail on their ends of the deal. By clearly stating the expectations of each party, it enables Michael and the other two parties to avoid any possible misunderstanding that may arise in the absence of a written contract. Although oral contracts are also enforceable by the law, Michael should be advised that written contracts are more helpful as it will save all the parties from rifts that may result in their undertaking. A possible scenario is when the terms of the contract are forgotten due to passage of time and possible memory lapse. Although Michael has the option of relying on the trust of his Mexican and Moroccan friend, this would be unrealistic as the threads of relationship – personal or business – may break during crisis. The assumption is that disagreements may arise specifically in situations where business relationship is intertwined with personal relationships. Having a written contract would enable Michael and the other two parties to be certain of all the details, hence mitigating likely disagreements in future. In any case, written agreements are far better than oral agreements since they are easy to enforce should a dispute end up in court. Conclusion In conclusion, Michael should give a clear offer that communicates his intention by clearly specifying to the Mexican and Moroccan friend that he wants them to make homemade Mexican and Moroccan cuisines respectively. He should also ensure that he promises to give something of value that is of benefit to the other parties, in exchange for their services. Michael should also be advised that the acceptance comes at the end of negotiation when the other parties agree with the terms of the contract. Further, since it is a contract of commercial nature, Michael does not have to address his intention in the contract as the law will assume there is an intention to create legal relations. Lastly, Michael should write a contract once all the elements of a legally binding contract have been achieved. [WORD COUNT 1157] References Books and Journals Capper, D 2009, "Common Mistake In Contract Law," Singapore Journal of Legal Studies, Vol. 1,pp. 457–473 MacMillan, C & Stone, R 2012, Elements of the law of contract, University of London International Programmes, London Ricks, V 2001, "Assent Is Not an Element of Contract Formation," Kansas Law Review Vol. 61, pp591-653 Case Laws Balfour v Balfour [1919] 2 KB 571 Brogden v Metropolitan Railway Company (1876–77) L.R. 2 App Centrovincial Estates PLC v Merchant Investors Assurance Company Ltd. [1983] Com LR 158 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1, [1915] AC 847 Fletcher Challenge Energy v Electricity Corporation of New Zealand [2002]2 NZLR 433) Read More