A contract is generally a legal accord between two or many people, fastening them together. Sir William Salmond, a scholar, defines it as “a conformity, which makes and recognizes duties between two or more parties.” The availability of a contract, people, as well as laws governing the agreement forms the foundation of today’s economy. This overview looks into details the elements of a valid contract, the objective theory of contracts and its applications, and briefly expounds on the difference between a contract and a reward.
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What are the four elements of a valid contract?
There exist quite a several elements of a convincing contract, but four of them namely, offer, acceptance, consideration, and intention of the contract, are the major ones. Unless stated by the law, an offer can be either verbal or written, depending on what the parties agree. According to Tirole (2006), when the offer has been given, the contract will be clearly defined if the concerned people accept it, and this happens just once. What forces the contract? This question is answered by the third element of consideration. Either it can be money, right, or a responsibility handed to another person. The fourth element is the intention of the parties to enter into the contract. The concerned people must be willing to agree, failure to which the contract will be termed void.
What is the objective theory of contracts?
Written by Fried, Contract as Promise is a book that expounds much on the Objective Theory of Contracts. It is the body, which tackles some crucial questions and answers concerning contracts. One basic question addressed here is the reason for the enforcement of the agreement whose suitable answer is wealth gains of enforcing bargains. According to Simpson (1975), this theory describes the steps behind the arrangement of a contract by the relevant people. It shares a lot between the agents and the inducements, making it fit well in the area of law and economics.
How does the objective theory of contracts apply to the case Leonard v. Pepsico, Inc.?
From the given case, the company producing soft drinks serves as the economic actor, whereas the Harrier jet serves as the incentive. The parties involved are the company and the Seattle man. Laffont and Martimort (2002) show how there should be asymmetric information between the participating bodies. It stands out clearly that the company has entered into a contract by offering the jet as a prize to any, who will purchase up to certain points as determined by the company. Here, any person is a part of the contract provided he/she has the points. From what results as the man gets the points, it is clear that the objective theory of contracts is not well applied because there lack of arrangements and asymmetric information, a situation that makes him lose the jet.
Why do you think the court held that there was not a valid agreement here?
Following the ruling of the court to the above case, it is termed as lacking a valid agreement. According to Ewan (2005), an agreement of each of the parties entering the contract shows the promises each makes to the other. This is not the case here. The company does not consult the other party either, does the party consult the company to strike an agreement of entering into a contract. Therefore, the court’s ruling is just.
Are advertisements generally considered offers? How does this case differ from a reward situation in which a unilateral contract is formed upon completion of the requested act?
The jet is just a mere advertisement for the company, and as Scott (2009) puts it, advertisements are not the same as offers. An offer is normally directed to a specific person or people while, an advertisement is no more than a way employed to welcome customers into considering a good or service is worth buying. On rare occasions, some advertisements stand out as offers if they are accompanied by some binding terms like ‘first come, first served.’ Again, the above case differs from a reward situation in that a reward case does not necessarily call for agreement between people neither does it involve any court action if it is not given out as pictured above.
In conclusion, it calls for a detailed plan between people intending to enter into a contract. A relevant body should also be alerted to take the necessary actions against any of those involved in the contract if he/she fails to adhere to the terms and conditions. Otherwise, one or all will suffer disappointed from the deal when they all lose it.
Ewan, M. (2005). Contract Law – Text, Cases, and Materials. Oxford University Press.
Laffont, J., & Martimort, D. (2002). The Theory of Incentives. Princeton University Press.
Martimort, D. (2008). Contract Theory: The New Pal grave Dictionary of Economics. W.Va, 2nd Ed, p.231.
Scott, F. (2009). Reciprocal Altruism as the Basis for Contract. University of Louisville Law Review, p. 489.
Tirole, J. (2006). The Theory of Corporate Finance. Princeton University Press.