Elements of a Valid Contract
While specific contractual requirements and interpretation of wording
varies from legal jurisdiction to jurisdiction, certain elements are essential
for a contract to be valid and supportable by applicable law: mutual
assent; lawful objective; capacity of the parties to perform; consideration;
and appropriate form. We will look at each of these in turn.
An offer by a supplier to an acquirer represents a proposal to enter into a contract with
that acquirer. Such an offer is typically, though not necessarily, in response to a Request
for Proposal (RFP) from the acquirer. A valid offer generally has the following properties:
- It represents a genuine intent to contract.
- It is formally communicated to the acquirer.
- Terms and conditions are certain and definitive.
- Neither party is under duress from the other (i.e., the contract can
be entered into voluntarily).
If the offer does not have these properties, then all or part of it may be
invalid and will not lead to a successful contract.
A contract must have a purpose and terms that fall within the law. A
contract whose purpose violates the prevailing law (i.e., involves unlawful
activity) is legally void and unenforceable.
Capacity of the Parties to Perform
Both acquirer and supplier must have the legal capacity to perform -- and
be clearly capable of performing -- their respective roles and
responsibilities. Of course, once the contract is signed and the project is
underway, lack of capacity may be difficult to prove. Breach of contract
law suits often focus on the actions, or inactions, of the project director or
manager, which can have a profound influence on contractual relationships
as well as schedule and cost of work.
"Consideration" is a legal term for something promised, given, or done by
one party in exchange for a reciprocal and valuable commitment by the
other. Moreover, both parties must be free to enter into the arrangement
voluntarily. In practical terms, an acquirer offers to pay money for a
service or product, in this case software, provided by the supplier. In
many jurisdictions there are limitations on the arrangements; for example,
there must be evidence that the respondent is free to bid, negotiate, or
withdraw. In such a case, a contract is not valid if the commitment has
been imposed by one side (i.e., the other side agreed to the terms under
duress). In addition, a contract cannot duplicate commitments already
contained in some other agreement, and a commitment of "moral duty" is
not sufficient consideration to support a contract. Finally, whether or not
the agreed-upon payment for the product is "fair" is not legally relevant,
as long as both the payment and the product have some semblance of
Courts in most jurisdictions apply various legal rules to interpret cases
involving conflict or ambiguity between the contracting parties.
Consequently, it is advisable to include a number of "standard" clauses in
the contract documents. Such clauses are, or should be, designed to
clarify the roles and responsibilities of both parties to their mutual benefit.