In one of our previous articles “WHY YOU SHOULD HAVE A WRITTEN CONTRACT”, a contract was defined as a promise or a set of promises made between two parties that the law will enforce. Also discussed were the benefits of having a written contract in business relationships.
This article will be focusing on the elements of a valid contract, what contract documents are and the forms they can take.
The major elements of a valid contract are: Offer, Acceptance and Consideration. What does each of these mean exactly?
An Offer, in the simplest sense, means presenting something to someone to either accept or reject. However, in contractual terms, an offer is an expression of willingness to contract on certain terms made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
An offer shows the Offeror’s (the person making the offer) willingness to be bound by his promise if it is accepted by the Offeree (the person accepting the offer). The offer must be clear and understood by the Offeree. Once an offer is accepted by the Offeree, it becomes a contract and is legally enforceable.
An offer is different from an invitation to treat. An invitation to treat is an invitation to make an offer. Proposals, bids or auctions, invitation to tender, display of goods in a shop or catalogues are few examples of transactions that are not regarded as offers but as invitations to treat and these are basically requests made to another person for them to make an offer to contract. Invitation to treat can also be defined as the initial moves made by parties before an offer is made or a contract entered into.
Acceptance is a promise or an act on the part of the Offeree indicating a willingness to be bound by the terms and conditions contained in an offer. It is simply an act, either express or implied, showing agreement with the offer. It is a final agreement to be bound legally by the terms of the offer. Offers can only be accepted by the person to whom the offer is directed to.
Consideration can be defined simply as the cost or charge for the promise received. A unilateral/one-sided promise (e.g. I will build you a house) cannot be enforced against the Offeror unless consideration has been given. Failure to make provisions for some form of consideration in a contract makes it a gift. It is a benefit, an act, a return promise or a thing of value given by the Offeree to the Offeror. What is important here is that something of importance or value to the parties is given.
Parties have the freewill to enter into contracts and specify the terms they wish to be bound by as long as those contracts are not illegal and against the laws of the country. Illegal contracts are void and cannot be enforced in a court of law. Examples of illegal contracts are contracts for the sale of arms or illegal goods; contracts that are not illegal in themselves but have an illegal purpose such as a contract to hire a car to be used in a robbery; contracts that are against public policy such as a contract to build a brothel; etc.
The following scenarios demonstrate how offer, acceptance and consideration work together to form a valid contract:
A to B: If you sell my goods, I will give you a commission of
N500 on each item sold. This is an
Offer with A as the Offeror and B as the Offeree. If B collects the goods to
sell them this is Acceptance of A’s offer. The Consideration is the N500 on each item sold.
CG is into Pancake-making and has a well established Pancake business and wide clientele. ZX Bank Plc. plans to run a training program for it’s over 2,000 employees in batches over the span of 2 years and has written a letter to CG to prepare a proposal on how much it would cost to make and deliver her pancakes to its employees for the period of the training. After due consideration of the proposal, ZX Bank Plc invites CG to enter into a contract with it which she does.
The letter by the bank to CG, her proposal to them and the main contract which she and the bank’s representatives sign all form part of the contract documentation. The invitation by the bank to enter into the contract is the offer and the acceptance is CG’s signing of the contract. The consideration in this case would be the amount the bank pays CG for her services as agreed in the contract.
Contract documents form the bedrock of a valid contract. Parties to a contract may put down the terms of their agreement into more than one document. The main contract or agreement which is signed by the parties to the contract may or may not contain express references to other related contract documents. The other contract documents may give fuller meaning and understanding to the contract itself and the intention of the parties bound by the contract.
Correspondences such as letters and proposals, contract information statement, plans and drawings, specifications, bill of quantities, other executed agreements, records, manuals, quotes, pre-tender & tender documents, product descriptions, modifications and additions etc. all form part of contractual documents.
For instance, when a candidate is offered employment in a company, he/she may be expected to sign an acceptance letter which may be the only document that is signed. Nevertheless, there are other important documents which make up the contract of employment and form the basis of the acceptance or rejection of the offer. Some of these may include handbooks/manuals, statement of terms and conditions of employment with the company, code of ethics etc. none of which may need to be signed by the employee.