Contracts are a big part of commercial transactions.
As a matter of fact, your company is set up to sell either physical goods or intangible services. That is a contract of sale.
Apart from the basic contract of selling, your company will enter series of contracts, so it is important to note what makes a contract legal and valid.
A contract is a legally binding agreement between two or more parties and for it to be valid, it must have these essential features.
Firstly, there must be an offer by one party and acceptance of that offer by the other party(ies).
For example, Worldwide Nigeria Limited (a fictitious company name) needs a legal adviser for their company, they reach out to our law firm Charis Legal Practice and make us an offer.
We accept their offer and we both agree on scope of our services which they need, the duration of the transaction and other important details (acceptance).
We have a written contract containing all the necessary details of our business arrangement which representatives of the company and the law firm sign.
Secondly, there must be consideration, meaning a party will give the other party something in return for the stated benefits. Each party has a benefit to be gained from the other party and in exchange for that, it has obligations to fulfill towards that party.
As in our example above, W Nigeria Limited agrees to pay #X million naira as fees in exchange for the legal services our law firm will provide.
Please note that consideration doesn’t have to be money all the time, as long as it is something of value e.g trade by barter where an interior decorator may exchange his/ her services for the services of a digital marketer.
Thirdly, there must be agreement or consensus. This is the bedrock of all contracts.
Both parties must agree on all the necessary details that the contract entails.
It is at the point of agreement that they sign the written contracts. As a matter of fact, there is no binding contract until the parties have agreed.
So W Nigeria Limited and Charis Legal Practice agree on the terms of the contracts e.g fees, mode of payment, mode of delivery, duration, scope of services etc, and include it in a contract.
Next and of utmost importance is that a contract must be for a Lawful purpose.
You can enter a contract to do something lawful only. An agreement between two people to defraud another person or give kickbacks for example cannot be a contract as it is not for a lawful purpose.
Finally, the parties must intend to create a legal relationship. This means they both agree that if a party doesn’t do what he or she agreed to under the contract, the court can compel that party to comply.
The relationship between Charis Legal Practice and W Nigeria Limited is a lawyer client relationship and if any of the parties fails to carry out their obligations under the law, the court can compel that party to comply.
There you go. These are the five essential building blocks of a legal and valid contract.
Do you have an question? Do type them in the comment section or send me an email here and I will respond asap.