Three Powerful Benefits of a Written Contract and how it can help to secure your business as it grows and expands. (Part 2)
Dear Entrepreneur and Business owner,
In the first installment of this article, we looked at the term contract, what it means, and how important it is in business.
In this second and final part, we will examine the subject further.
Elements of a valid contract
A contract has six important elements that make it valid in a court of law. These include:
The offer is the primary consideration in a contract.
It is what you are giving out or the service that is being rendered. In the instance mentioned above, the 3D Motion Logo Design is the offer. Without an offer, there is no contract.
As the word implies, means the other party accepted the offer made to him or her.
According to Allen & Overy:
“An acceptance is a final and unqualified expression of assent to the terms of an offer.
An offer must be accepted following its precise terms if it is to form an agreement. It must exactly match the offer and all terms must be accepted,
Acceptance has no legal effect until it is communicated to the offeror (because it could cause hardship to the offeror to be bound without knowing that his offer had been accepted).”
This refers to what is being given in return for the offer that was received. This consideration may be the payment that will be made for the Offeror task to be carried out. For a contract to be valid, there must be a consideration.
For example, a customer in a fast-food restaurant orders lunch which costs N3,000.00. By ordering the food the customer is agreeing to pay N3,000.00 as consideration.
4. The intention to create a legal contract
According to Allen & Overy
“An agreement, even if supported by consideration, is not binding as a contract if it was made without an intention to create legal intentions.
That is, the parties must intend their agreement to be binding under the law
In the case of ordinary commercial transactions, there is a presumption that the parties intended to create legal relations. The onus of rebutting this presumption is on the party who asserts that no legal effect was intended, and the onus is a heavy one.”
The Law teacher.net explains certainty as follows:
“Another main element in a contract would be a certainty. The terms and regulations being made in a contract should be stated clearly and understood by the parties of the contract. If the agreement is not certain, it would be no longer valid. For example, if the guest wants to stay in a hotel, the guest needs to inform how many days he or she is staying at the hotel, the type of room, and also the date when he or she are going stay and the number of days he or she is staying.”
Capacity is also explained by Law Teacher.net as follows:
“Capacity in a contract is the parties to the contract must have the legal capacity to do so.
Eighteen years is stated as the age of a major. Minors who are people below the age of eighteen cannot enter into contracts.
Therefore, insane people or people with unsound minds also cannot enter into any valid contracts.
For example, a person who is at the age of sixteen years old could not stay at a hotel. The hotel staff would not allow having the person who is sixteen years old to stay at the hotel since that person is not eighteen years old or above. For the person to stay at the hotel, he or she must have a guardian who is above eighteen years old or a parent to accompany him or her to stay in the hotel.”
If these elements or conditions are not fulfilled in the contract, the contract may not be valid in a court of law.
Benefits of a contract
Yes, many business transactions will be conducted based on a gentleman’s agreement. And indeed things will work as planned.
But, this should be the exemption rather than the norm.
Often we do business based on trust or relationship. There is nothing wrong with this. Many people will only deal with you based on a prior relationship or recommendation. These prove that the human element is vital in business.
But it is also important for an entrepreneur to protect themselves with contracts that spell out the scale of their services and what they are willing to give the customer.
Clarity of purpose and expectation
The contract can provide clarity to the parties involved in the transaction.
It states in bold print what has been agreed on, and helps to manage the expectation of relevant parties through the details provided in the contract.
For example, a written employment contract sets forth the terms between the employer and an employee with regards to their duties and responsibilities, payment, and relationship.
In case of dispute, or litigation, the contract is there to state your case and protect you from liability.
Helps Develop Business process and systems
If a business is to scale up and grow, it must have rules, terms, and conditions. This could form the basis of its contract documentation. And it will serve as a guiding principle for customers or prospects.
So, whether you are a service provider, a manufacturer, a retailer, wholesaler, employer of labor, and so on, you must consider the importance of a written contract in your business endeavor.
In summary, the benefits of a written contract outweigh the excuses for not having one.
But whether you are the one offering the contract or receiving it from another person, it is always advisable to read carefully and understand the terms/conditions as stated therein before signing.
After all, ignorance is not an excuse in law.
So what is your take about contracts?
Do you have any experience with contracts that you think others can learn from it? Please feel free to share them in the comments section.
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