FORMATION OF A VALID CONTRACT QUESTION Intention, capacity, formalities, consent of parties, and certainty.

Discuss the necessary elements for the formation of a valid contract. 1.0 Introduction Most people in our society are involved in contractual agreements of some kind. Contracts are involved in family law, corporate law, employment law, litigation and real estate. For example, real estate transactions are ruled by specific documents such as leases, listings and offers to purchase. Such documents spell out the contractual rights and obligations agreed to by parties to certain transactions. The object and purpose must be legal for a contract to be legal. If its purpose is illegal because of statue of common law, the contract may be void. If the formation or the performance of a contract is illegal, resulting in a crime and/or tort, or opposing public policy or interest, the contract is usually considered void. For example, any contract that involves purchasing a stolen item or an illegal drug, or involves fraud or harming someone would be considered void. A contract means that there is an agreement between two parties which is enforceable by law. Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. The Law of Contract in Malaysia is governed by the Contracts Act 1950.

2.0 Elements of a Contract Contracts that meet all legal requirements are valid and enforceable, which means that either party can hold the other party responsible for his or her agreement. Those requirements below must be met before a contract is valid: i. Offer and Acceptance To have a valid contract, there must be a meeting of the minds (mutual assent), nominally evidenced by an offer and acceptance. An offer can be described as 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 (Cheeseman, 2010) It is made by an offeror who is making the offer and expresses that person's willingness to enter into a particular agreement. The offeree is the person to whom the offer is made. There are two basic ways an offer are made either in writing or implied by conduct (oral). When the offer is accepted by the offeree, a contract is formed. Then, acceptance is a final and unqualified expression of assent to the terms of an offer. ii. Intention to Contract The person must want to create legal relations. Therefore the parties signing a contract must know that they are entering a legal agreement that cannot be broken. There must be an intention among the parties to create a legal relationship. In case of social or domestic agreements, the usual presumption is that the parties do not intend to create legal relationship but in commercial in business agreement, the usual presumption is that parties intend to create legal relationship unless otherwise agreed upon.

iii. Capacity to Contract The ability to know and understand the terms of contract is known as capacity. For a contract to be valid, all parties must have capacity. Corporations and most adults have capacity. If a person is so mentally incompetent that he or she fails to understand that a contract is being made, the contract is generally considered as voidable. The parties that do not have the capacity to enter a contract are peoples under the age of 18, persons under the influence of alcohol or illegal drugs, and persons of unsound mind. iv. Consent of Parties There must be a free consent of the parties to the contract. Consent is said to be free when it is not cause by order influence, fraud, mistake, and misinterpretation. A person must enter into a contract of their own free will. If the consent of the party is not free then not valid contract comes into existence. v. Certainty of Meaning Certainty of meaning is used when terms and conditions are not clearly defined. Both the parties should have clarity of contract. It must be communicated to the person to whom it is made and acceptance to be valid must fulfill certain conditions. vi. Formalities This refers to the manner in which the contract is made. It can be oral or written. For example, when buying a house a contract must be written. In this element, hand written documents, stamps or signatures are must for a contract. If legal formalities are not fulfill it will not be considered as a valid contract.

3.0 Conclusions Contracts are part of everyone's everyday life. There are six requirements necessary for a contract to be valid which includes of an agreement which usually consists of an offer and an acceptance of that offer, the agreement must have consideration which is something bargained for and given in exchange for a promise. Also, the parties must have the capacity, or legal ability to contract. In addition, the contract must be based on the genuine assent of each party, that is, both parties must be agreeable to the terms of the contract, the subject matter of the contract must be legal. Finally, contracts must be in proper form. Even though courts will enforce an oral contract, some categories of contracts must be in writing to be legal.

4.0 References Cheeseman R. (2010). Business Law Fifth Edition, Pearson Education. Michael H. Wald, Wald & Associates, REQUIREMENTS OF A VALID CONTRACT. Retrieved on 25th June 2011 from http://www.waldlaw.com/.

APPENDIX A

SAMPLE CONTRACT