Topic 2: Contracts The Basics
By the end of this topic, you should be able to understand:
Offer and Acceptance
Consideration
Basic contract drafting with samples
Memorandum of Understanding
Assessment 1
Contracts The Basics
Now that you have a registered legal entity, one of the ways your organization will exist and carry out its work is through agreements with other parties. This is done primarily through contracts. A contract is basically an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties.
For a contract to be legally enforceable it must have the following elements: Offer, Acceptance and Consideration.
Offer and Acceptance
An offer is basically where a contractual agreement begins and is the part of the formation of a contract.
An Offer is defined as an expression of willingness to contract on specified terms, made with the intention that it is to be binding once accepted by the person to whom it is addressed.
An offer must be distinguished from an invitation to treat, by which a person does not make an offer but invites another party to do so. Whether a statement is an offer or an invitation to treat depends primarily on the intention with which it is made. (Partridge v Crittenden [1968] 1 WLR 1204)
Offer and Acceptance
Once a valid offer is made, there needs to be acceptance of the offer.
Acceptance is defined as final and unqualified expression of assent to the terms of an offer. An offer must be accepted in accordance with its precise terms if it is to form an agreement. It must exactly match the offer and ALL terms must be accepted. (Adams v Lindsell [1818])
Consideration
Consideration is something of value that needs to be traded between the parties to make the contract enforceable.
For instance, in an employment contract an employee will provide their time and expertise to an organization in exchange for money in the form of a salary.
Consideration is “something of value” which is given for a promise and is required in order to make the promise enforceable as a contract. This is traditionally either some detriment to the promisee (in that he may give value) and/or some benefit to the promisor (in that he may receive value).
Types of Contracts for your Startup
One of the most important aspects of your start up organization is to have all your formal relationships reflected in writing. This will assist in managing relationships but also accurate record keeping in case of any disputes. The following are the types of contracts you should consider in managing your relationships:
- Employment Contracts
- Supplier Contracts
- Funder/Donor Contracts
- Volunteer Contracts
- Partner/ Collaboration Memorandum of Understanding
Memorandum of Understanding
As part of your organization or start up you may want to collaborate with like-minded organizations, communities or government ministries.
To facilitate this partnership, you can enter into an agreement called a Memorandum of Understanding.
A Memorandum of Understanding, or MOU, is a nonbinding agreement that states each party’s intentions to take an action, conduct a business transaction, or form a new partnership.
This is not a binding contract; however it works as a tool to facilitate partnerships in writing and outline the areas of synergy with relevant stakeholders and partners.
Assessment 1: Drafting Exercise
