Finance - Valid Contract Assignment Example | Topics and Well Written Essays - 750 words

Finance - Valid Contract - Assignment Example Before a contract becomes legally binding, there are some essentials that must be satisfied otherwise referred to as elements of a contract. Elements of a valid contract are: 1. Offer and acceptance In a contract, there are two parties: the offeror and the offerree. The offeror makes an offer that has to be accepted by the offered without alteration of the terms i.e. the offer must be accepted precisely (Burnett, 2010). The promise by one party to do or not to do something if the party accepts to do or not do something in return is referred to as an offer. Where the offered gives new terms in order to accept the contact, then this will be referred to as a counter offer. Both an offer and acceptance must be communicated (Burnett, 2010). Advertisement, preliminary negotiations or opinions does not constitute an offer but are considered an action to treat. 2. Intention to create a legal relation An agreement in itself does not constitute a contract unless the parties to the contract int end to be legally bound in their agreement hence an agreement between minors does not constitute a contract (Liuzzo, 2010). Proof of creating a legal binding agreement is therefore mandatory. 3. Consideration Consideration is the price paid in return of the promise of another party. The consideration must have value not necessarily money. An interest, a right, or benefit to the party making a promise. Furthermore, the consideration must not be something that is illegal e.g. committing a crime, as a price is not considered as a consideration. It should be noted that the adequacy or inadequacy of the consideration does not affect the validity of the contract (Burnett, 2010). One only needs to prove that there was consideration in the formation of the contract. 4. Capacity to contract Not everybody can enter into a contract because of legal limitation. Minors, people with mental impairment, prisoners and bankrupt individuals or corporation therefore lack the legal capacity to enter int o a valid contract. This is because the parties might lack the ability to understand fully the implication of the contracts (Liuzzo, 2010). Contracts with minors are also invalid because they might be compromised. However, contracts with minors are enforceable where the contact is of the supply of necessities e.g. supply of cloth, medicine, and food in some cases. 5. Consent willingly attained In entering a valid contract, the parties must have made the decision freely and willingly without any interference or coercion. A proof that either parties consent was not freely obtained will make the contract void. The factors that may affect proper consent include mistakes, duress, undue influence, or false statements. Mistakes will make contracts not binding if it relates to the very basis of the agreements e.g. mistake in signing of the agreement. False statements may be fraudulent, innocent, or negligent. Negligent and fraudulent false statements would normally result in rendering the c ontract void and therefore unenforceable. Undue influence on the other hand entails where one party takes advantage of the weaknesses of the other party to enter into a contract hence impairing voluntary consent to contract e.g. the contract between a teacher and student may be unduly influences. For duress, there must be some element of threat to a party hence making him/her contract unwillingly. 6. Legality of a contract In