Business Law

"The formation of a contract is not to be confused with its legal enforceability" Discuss.

A contract is put in place to provide a legal link between each party. Therefore it is important to understand on how a contract is formed and what are the steps and requirements to make sure the contract stays legally enforceable. In order for a contract to exist, there are four key elements to it. An offer must firstly be made by the offerer, followed by the acceptance of the offer by the offeree. Considerations must also be done under seal and deed and there must be an intention to create legal intentions for the contract. All these terms must be fulfilled, as any terms left unfulfilled would deem the contract as non-legal enforceable. Besides these key elements, there are also certain factors which might affect the legal enforceability of a contract.

Firstly, I will discuss on the basic formation of a contract that consists of the offer, acceptance, consideration, as well as the intention to create legal intentions. Secondly, I will discuss whether in terms of the four key factors, are they sufficient enough to allow legal enforceability, Thirdly, I will touch on what are the other factors that we have to consider in order for a contract to be legally enforceable. Lastly, in conclusion I will then show why I agree with the statement.

The reason as to why Contract law exists is because it is there to make sure people keep their promises to one another. A contract is made up of a promise of one party to do a certain thing in exchange for a promise from the other party to do another thing. The law will enforce on them if either party breaks away from the promise, as promises are what contracts are all about.

Contract law is based on several Latin legal principles, the most important of which is consensus ad idem, which means a meeting of the minds between the parties. It also means a clear understanding, offering and acceptance of each person's contribution. Lawyers say that it is from the moment of time where both minds reach a common consensus that a contract is formed and may be enforced by the courts. The formation of contract law is based on these four key factors.

The first element of the contract is the offer. An offer is an intimation of willingness by an offeror to enter into a legally binding contract. Its terms either expressly or impliedly must indicate that it is to become binding on the offeror as soon as it has been accepted by the offeree. In order for an agreement to arise, an offer made by the offeror must be made certain or he must show he is capable of making it certain. The offer can be made to specific person, a specific group of people, or in the case of a unilateral contract, to the whole world.

Contracts exist in either a bilateral or unilateral form, with the bilateral being the more common of the two. A bilateral contract is where both parties, upon agreement, made a promise, or promises, to each other. In this way, different parties in a bilateral contract would know the identities of the other. It is also sometimes called a synallagmatic contract, because the word 'bilateral' would mislead people that it can only happen between 2 parties. A unilateral contract is one where the offer is accepted by the offeree, once he or she had accomplished his or her side of the bargain, as illustrated in Carlill v. Carbolic Smoke Ball Co. Oftenly, a unilateral's contract is made in terms of advertisement, to many people, or even to the whole world. Usually acceptance of these types of contract happens when the condition is satisfied (such as finding the offeror's dog). Only when the offeree is able to accomplish the condition as presented in the contract, the offeror is obliged to fulfill the promise.

Consideration is an important process in a contract, as any contract that had not been supported by any consideration will be deemed by the court as not enforceable, unless the promise is contained in a deed. In a consideration, it is usually what one party does or agrees to do in return for the other's promise; mutual exchange. Consideration is usually a bargain for the exchange of something of value, often something tangible like money or goods. The value of money of goods need not commensurate with the offer, as consideration needs not be adequate, Chappell & Co Ltd v. Nestle Co Ltd (1959). These few requirements must first be met, if any one of these are not agreed upon, the consideration will be void.

There must be consideration given by all the parties that are involved, meaning that every party falls in a win - win situation (for eg.: Tom agrees to pay Harry $8,000.00 to offer tuition to his ward). If Harry did not carry out his obligations, he would be liable to be sued by Tom for breach of promise, even though the tuition is meant to benefit his ward and not Tom himself. This is where consideration need not move to the promisor, but to someone else who benefitted from the promise. However, there must be consideration to move from the promisee to enforce the promise. For example, if Harry instructs Tom to have a tuition class ready before he starts his tuition, and he fails to do so, Harry can enforce the contract because there is consideration moved from him.

After having done with consideration, the party will have to decide whether to accept the contract. The party cannot only find the contract 'agreeable', they must 'Accept' the offer in the contract. An agreement will not arise until the offeree has signified his or her acceptance of the offer. The offeree must not leave room for doubt as to the fact of his acceptance. If the offeree communicates to the offeror that he wishes to change one of the proposed terms, it is considered to be no acceptance because it is not unconditional. Acceptance must be on the same terms as mentioned in the original offer. If there are new terms or conditions introduced, acceptance is not valid. What would turn out would be a counter offer as in Hyde v. Wrench. The acceptance of an offer must be communicated, for it to be considered by the court as valid.

Acceptance can be communicated in many ways. The first way is that it can be made in forms of writing, verbally or in conduct, Lim Hwee Heng v. Citadel Investment Pte Ltd (1998). However, in a contract, it can also state the mode of communications allowed, for example email. If there are no mandatory modes, any mode chosen would be valid if it is reasonable. The second way, is that the offeror can state that silence of the offeree can amount as acceptance. This is possible only if both parties agree to this arrangement, if not there would be an abuse of this rule, Felthouse v. Bindley (1862). This method of communication of acceptance is imposed to benefit the offerees.