Contract Elements that Every Business Owner should be Aware of
'Funmi Adesina-Bablogbon is a Law Lecturer at one of the…
Every business undertaking undergoes one form of contractual obligation or the other. Simply put, contract is a legally enforceable agreement between two or more parties having the intention to be bound by it. An agreement between Party A and B for the supply of bed sheets by B is a contract. Going by the preceding definition, it is noteworthy therefore to highlight the following:
- The parties to a contract are usually 2 (two).
- The agreement involving the parties must be definite enough to bind them.
- The agreement must be enforceable under the law.
Contract is present in virtually every facet of human life. Marriage between a man and woman is a contract. The relationship between a plumber and his client is that of contract for services. Every contract has basic elements that must be present in order for law to accord it the status of a contract. Attempt shall be made to discuss each of these elements.
Elements of a Contract
- Invitation to treat;
- Intention to create legal relations;
Invitation to Treat
Invitation to treat is not a definite proposal but permission accorded one party by the other to inspect the goods or negotiate in order to conclusively agree on a substantive contract between the parties. A typical example of invitation to treat is display of wares or goods at your store. If a customer is interested in any of the goods on display, he picks it up and pays for it. In this case, the display does not imply an offer. Rather, it connotes an interest by you, the business owner to allow customers to make an offer by purchasing if so interested.
Intention to Create Legal Relations
A distinguishing feature in a contract that can be enforced and upheld by the Court is the intention of both parties to be bound by the terms of the agreement. This simply means that the parties intended from the commencement of the contract to create a relationship that is recognizable and acceptable by law. Not all agreements entered into are enforceable at law as a result of the parties’ intentions. Consequently, not all agreements are acceptable at law as binding. A contract between a parent and his child or a husband and his wife for instance are considered domestic agreements that lack the capacity to give rise to legal relationships. Such relationships merely give rise to moral obligations incapable of enforceability.
An offer is a definite promise made by one party with the intention to be bound by such promise the moment the offer is accepted by the party to whom such an offer is made. There are two parties to an offer: the offeror ( the party from whom the offer emanated); and the offeree (the party to whom such offer is made).
For an Offer to be valid, the following features must be present:
- An offer must be communicated to the offeree by the offeror; and
- It must be a definite offer and not one made in a moment of jest. It must clearly and undoubtedly be an offer that can be acted upon by the Offeree.
Termination Of Offer
The span of an offer is terminated through the following:
- Revocation: This is a right recognized by law and exercised by the offeror to withdraw the offer he made to the offeree before the latter acts on it. It should be noted that for revocation to be considered valid, it must be duly communicated to the offeree. Such communication must be expressly communicated. Regardless of the acceptance of the offeree to the initial offer, once it has been revoked, such an acceptance will be considered counterproductive. An offer to purchase bed sheets for commercial purposes may be revoked even where the seller has taken certain steps to procure the bed sheets for the buyer.
- Lapse of Time: Where an offer was made for duration of time any acceptance made at the expiration of such duration is considered ineffective. Acceptance by a person to purchase electronics on Jumia at reduced rates after one week of the expiration of the company’s Black Friday promo has elapsed would terminate the offer for Black Friday Sales.
- Death: The legal principle is that the death of the offeror is sufficient reason to terminate an offer regardless of the offeree’s acceptance of the offer after the death of the offeror. However, for the termination to be effective, death of the offeror must be effectively communicated to the offeree.
- Rejection: Rejection of an offer by the offeree is sufficient reason to terminate the offer.
- Counter Offer: In a situation where the offeree makes a new term, or gives a condition to accepting the offer, a counter offer is said to be made. Such counter offer has the effect of invalidating the initial offer made by the offeror. An offer must be unqualified. For instance, an offer by the offeree to buy at a reduced price a dress initially offered up for sale by the offeror would automatically invalidate the first offer. The offeror therefore has the prerogative to sell the dress to someone else who accepts the initial price wholeheartedly.
Acceptance is usually made by the offeree as assent to the terms of the offer made by the offeror. In order to uphold its validity at law, such acceptance must possess certain elements such as the following:
- It must be unqualified/ unconditional, otherwise, it will be deemed to be a counter offer capable of terminating the offer.
- An acceptance must be communicated to the offeror. Silence would not suffice as assent.
- It is a principle of law that the only person who is entitled to accept the terms of an offer is the offeree. This principle stems from the rule of privity of contract. This rule states that only parties to a contract can sue on the contract. Third parties (i.e. non-parties) are not qualified to sue on the contract.
- The manner of acceptance of the offer must be one prescribed by the offeror.
This is simply the price paid for the enforcement of a promise made by the offeree. For it to be regarded as such, consideration must conform to the laws and regulations of Nigeria and must not be in any way, illegal. It must move from the promisor. This means only the person who paid the price can enforce the promise. Consideration must be the performance of a duty or obligation which at law, the promisor is bound to perform. You are not duty-bound for instance to pay a police officer for patrolling the community where your shop is situated. Notably also, it need not be adequate, but it must be sufficient, such that the promisor can be seen to have undergone sufficient detriment in parting with the consideration. An instance is the Black Friday or discounts enjoyed by customers of business enterprises. Payment of 50% less than what a commodity is worth means the consideration is inadequate but as far as the business owner and the customer are concerned, the amount is satisfactory.
This refers to the legal ability of a party to so contract. Age of a party would determine if he has contractual capacity. Under our law, a minor (i.e. someone under 21 years of age) cannot be a party to an agreement. A drunk, illiterate, or insane person is disqualified usually from embarking on any contract as they are said to lack the contractual capacity to comprehend fully what the contract is about.