Law of Contract


In general, law refers to the rules of conduct and standards prescribed by people in authority for governing and regulating peaceful relations between members of a particular community or state. It is by this sole reason that business law exists to govern the rules and conduct of business transactions in the society today. What comprises a contract in business? The paper focuses on law of contract in business and gives an example which is evaluated on whether it amounts to a valid contract or not. In addition, the ingredients that make up contract law are analyzed in view of the example given. Main emphasis in the paper is the essentials of a valid contract in business.

Introduction: Contract law

A contract is an agreement between two or more persons with the intention that the agreement shall have legal consequences and that it will be enforceable by the governing law. An agreement on the other hand is a promise or sets of promises forming considerations for each other or parties to the agreement. An agreement therefore involves an offer made by one party forming considerations for each other and when it is accepted by the other party. Without acceptance, an agreement cannot be said to be in existence. When an offer coupled with an agreement is legally enforceable by law, a contract therefore comes in to existence. However, all contracts are agreements enforceable by law but not all agreements are contracts.  For contracts to be legal, there should have the intention to contract and create legal relationships, thus ensuring that they can be enforceable by law incase one party defaults or breaches the contract (Mckendrick, 2005).

Jose a neighbor has a friend called Mr. Davis. Jose and Davis entered into an oral contract in which Davis agreed to sell his car to Jose for $3750.The two have been good friends and Mr. Davis suggested to Jose that he was selling one of his two cars, which are a Toyota and a Peugeot. After giving the idea careful thought, Mr. Davis sought it wise to ask Jose whether he would be interested in buying one of his cars and Jose agreed to buy one of Mr. Davis cars. Mr. Davis went to Jose by saying “will you purchase one of my cars for $3750?” Mr. Davis did not specify which car he wanted to sell to Jose. Mr. Davis was thinking of selling his Toyota car and he did not specify that in the oral agreement while Jose was thinking of buying the Peugeot and he went ahead and deposited the money in Mr. Davis bank account. Jose had already deposited the required money that Davis specified in the contract to Davis’s account. When Jose went to collect the car, he found out that Mr. Davis was not selling the Peugeot rather than the Toyota car which he did not want to buy. He maintained that Mr. Davis has breached the law of contract by refusing to sell his car. Jose was in a dilemma of taking his friend Davis to court since both of them were really good friends while Davis maintained that he did not breach the law of contract, since he never intended to form a contract with Jose for he was his friend and he did not document the contract (Barnett, 2003).

Firstly, oral contracts are agreements which are enforceable by the law not unless the law specifically stipulates that the contract should be in writing or attested, and then it must be so otherwise the agreement shall not be enforceable by the law. Therefore, Jose maintained that he had entered into a contract with Davis. In addition, the agreement between Jose and Davis was not a social, religious neither a domestic contract, it was a business contract formed when Jose accepted the offer and paid the amount of money to the account. A contract with the intention to create legal obligations is always presumed therefore, that once an offer has been accepted, it automatically becomes a contract under the law and whereby the rights and obligations arising from the contract must be respected. Therefore, failure to honor the obligations placed upon one party can lead to the other party seeking justice in the court of law. Davis should have understood that all contracts are agreements but not all agreements are contracts. Oral contracts are equally enforceable by law just like written contracts (Liuzzo, & Bonnice, 2007).

While applying the principles of contract law, the parties did not agree on the same thing at the same time and therefore the agreement could not form a contract that could be legally enforceable by law. An agreement must exist between parties, that is one party making the agreement and the other party accepting the offer. An offer to an agreement must be definite and accepted by the other party unconditionally. That is the party accepting the agreement should be in the manner described and both must be communicated to each other. Jose thought that the car being sold was the Peugeot while Davis was selling the Toyota which Jose did not want to buy and thus they did not agree ad idem, which is on the same thing and at the same time (Barnett, 2003).

In addition, for a contract law to exist there should be the intention to create a legal relationship between the parties for the contract to be valid. This is specifically so, for the parties to the contract to go to a court of law if one of the parties defaults the agreement in the contact. The contract must also have lawful or legal consideration for the price of a contract is believed to be the consideration. Also individuals to the contract must be within the capacity to contract for instance, they should not be minors, should be of sound mind and not disqualified by law from entering into a contract. Both parties to the contract are thus said to be of understanding of the contract and therefore forming a rational judgment regarding the contract contents. The parties should give their free consent to contract for the contract to be valid. This means that individuals to the contract should not be forced to contract (Liuzzo, & Bonnice, 2007).

The position taken in the example is that Mr. Davis should refund the money Jose paid into his account since the two did not agree on the same thing. He should not go ahead and force Jose to take his Toyota car since this would mean that Jose has been forced to contract. For the contract to have existed; Davis should have specified that he intended to sell his Toyota car and not his Peugeot car. In my own view and according to contract law, Davis and Jose did not have a valid contract and therefore not enforceable by law. It is always the responsibility of the person offering to state all the requirements of the contract at the time of making such offers and before the person accepting the offer pays the consideration (price) for the contract. Therefore effective communication should be employed which can only be obtained when the person accepting the contract is fully made aware of all the conditions of the offer. In contract law, parties coming together and forming a contract should be careful in forming contracts for them not to make mistakes which can make them be sued in a court of law (Liuzzo, & Bonnice, 2007).


Liuzzo, A. & Bonnice, J. (2007): Essentials Of Business Law: New York: McGraw – Hill/Irwin: 6th, Ed.

Mckendrick, E. (2005): Contract Law – Text, Cases and Materials: New York: Oxford University Press

Barnett, R. (2003): Contracts: New York: Aspen Publishers