The law usually governs every aspect of the lives of people, business transactions included. This paper discusses the law of contracts and how it is applied in business transactions. The main elements of the law of contracts are offer, acceptance, capacity, legality and the intention of the parties.
The definition of a contract is an agreement made between two parties who have the capacity to contract. There are obligations between the parties, which are enforceable by law. We are now going to look at every element of the law of contract and also the factors that can make the contract be set aside. There are also remedies that are available to a plaintiff if the contract is breached.
The first element of the law of contract is offer. For there to be a contract between the parties, an offer must have been made by one of the parties and the offer is then accepted by the other party. The acceptance must be communicated as soon as possible and it should be communicated through the appropriate channels, for example the post office. The offer made by the party must also be accepted unconditionally otherwise there wouldn’t be a contract.
The second element of the law of contract is capacity. Before the law of contract is applied in the business, the parties must have the capacity to contract. For the parties to have the capacity to contract, they should not be a minor, person of unsound mind or an undischarged bankrupt. If the contract is made with either of these people then, it would not be a valid contract. In businesses therefore, the parties have to ensure that whoever they are contracting with has the legal capacity to contract for the contract to be valid.
Another element of the law of contracts is that of consideration. For there to be a contract, there has to be a consideration between the parties. Consideration mainly involves a promise to do something and in exchange of the service being delivered, the other party pays some money. The consideration must be something of value to the parties that can be objectively determined. A consideration can be a promise to do an act or a promise to refrain from doing an act that one is legally entitled to do. It is therefore something of value that is given by both parties. In the case of Thomas vs. Thomas, it was stated that the consideration must be something of value and that it excludes promises of love and affection. There are various rules that govern the element of consideration. These are that the consideration must not be in the past, consideration must be sufficient but not adequate, an existing public duty would not amount to a consideration, an existing contractual duty would not amount to a consideration and that part payment of a debt is not a valid consideration for a promise to forego the balance.
The next element of the law of contract is that the parties to a contract should have the intention to contract. Intention to contract means that both parties intended it to be legally binding and enforceable by the courts. In the common law case of Carlil vs. Carbolic Smoke Ball Company, the manufacturer of a flu medicine, advertised that buyers who bought the medicine and still got the flu would be compensated 100 Euros. The manufacturer even deposited 1000 Euros with Alliance Bank Reagent Street. When the plaintiff contracted the flu after using the carbolic smoke ball, the company refused to pay claiming that it was not a serious contract. It was held that the company should pay because the advertisement had been relied on by the plaintiff and the company depositing 1000 Euros with the bank meant that they had the intention to contract. They therefore could not go back on their word. In the case of Balfour vs. Balfour, a husband promised to pay his wife maintenance while he worked in Ceylon. It was held that between the two there was no intention to be legally bound.
The next element of the law of contracts that is used in businesses is that of legality. This means that the subject matter of the contract that has been formed has to be legal. For example the contract would not be valid if the contract is about committing a fraud by both parties or when one party sells a house to the other party and the house does not even belong to him. The undertaking that is the subject matter of the contract must be allowed by law in the first place.
There are void and voidable contracts in law. A contract is void if it cannot be legally enforced maybe because of the elements of the contract not being available in the contract. A contract is voidable if under certain circumstances the obligations that are set out in it can be avoided. A contract creates duties on both parties and both parties must strive to fulfil those duties and carry them out.
Sometimes there is a breach of the contract. The breach occurs when one of the parties does not perform their obligation. A breach of the contract may occur when the party does not perform the contract on time, does not perform the obligation at all and does not perform according to the terms and conditions that are set out in the agreement. In contracts sometimes, the contract may be frustrated. This means that a party cannot perform his or her obligations anymore. Some of the circumstances under which a contract can be frustrated are when the subject matter of the contract is for example destroyed or an act of God or nature prevents the obligations from being fulfilled. Contracts have conditions and warranties. A condition is a term of major stipulation and when breached the contract is liked to be set aside. A warranty is a term of minor stipulation and when breached the contract would not be set aside because it can be remedied.
When a contract is breached, the plaintiff can go to court and there are remedies that are available to the plaintiff. Some of those remedies include, damages being awarded, suing for specific performance of the contract, restitution and suing for the contract to be set aside discharging the parties of their obligations.
In conclusion, the law of contract is very important in businesses and the above discussions show the elements of the contract, factors that lead to the breach of a contract and the remedies available to a party after the contract has been breached.
Works Cited
Capper, D. (2009). Common Mistake in Contracts. Singapore Journal of Law Review , 457-497.
Gillies, P. (2004). Business Law. Sydney: Federation Press.
lawhandbook.org. (2013). Elements of a contract. Retrieved December 04, 2013
Miller, R. L., & Jentz, G. A. (2011). Fundamentals of Business Law: Summarized Cases 9th ed.: Summarized Cases. New York: Cengage Learning.
