Enter Into a Contract: Everything You Need to Know
When you enter into a contract, it is important to follow several rules to ensure the contract is valid and enforceable in a court of law.3 min read
When you enter into a contract, it is important to follow several rules to ensure the contract is valid and enforceable in a court of law. The first thing to know is who can legally enter into a contract. For a contract to be valid the persons signing it must:
- Be the necessary age according to the law that governs the contract. If deemed a minor when signing, the contract will be considered void.
- Be of sound mind and have the mental capacity to understand what is in the contract and what entering into the contract actually means.
- Be able to enter into a contract.
Entering Into a Contract
Since only humans can legally enter into a contract, a company must assign an individual, who is authorized to act on behalf of the company to sign the contract. It is important when signing on behalf of the company that you indicate your ability to do so with your signature. For example, when signing on behalf of a company to purchase 500,000 units, you don't simply sign your name; your signature should include your name and title with the company.
Since a company is considered an artificial person and cannot enter into a contract on its own, the contract is actually binding between the two authorized individuals that signed. This makes having a well-drafted agreement vital. Your agreement should include:
- The name of the company and address of its registered office.
- The fact that the signatory is authorized to do business for the company.
- A representation clause which gives the signer the authority.
When a company has a board of directors, either legal counsel or a vice-president-level employee will be designated with the ability to sign important agreements on its behalf. For lower-value agreements, a mid-level manager may be assigned to the task. All those who have this authorization should be aware of the written articles that a company has to abide by.
An example would be company articles that allow one board member present in a meeting to sign an agreement but not a mid-level manager. In this case, the agreement with the board member would be valid, but the one signed by the mid-level manager would not be.
If indoor or principal management is entering into contracts for a company, these individuals will not need to make any inquiry regarding the proceedings linked to executing a contract as long as they have followed the transaction in accordance with issued memorandums. Basically, any person in a company can sign if the articles for the company allows them to do so. Other individuals can be authorized to sign on behalf of the company if:
- The board passes a resolution.
- The board gives someone power of attorney.
In a company that is a partnership, any partner can enter into a contract. However, all partners could be held liable for breach of contract since partnerships are not legal entities. In a partnership, everyone one is the agent in the firm. This means it is impossible to limit any partner's ability to sign.
Contracts and Agreements
There are many times throughout your life that you will be entering into contracts, sometimes without even realizing it. Some of the most common contracts you may find yourself entering into include:
- Rental or tenancy agreements.
- Employment agreements.
- Cellphone contracts.
- Purchasing goods.
Offer and Acceptance
For an agreement or a contract to occur, there have to be two components: an offer and acceptance. The party selling or providing the service is making an offer that the other party accepts when they receive the goods or services. In courts, it has been ruled that promotional displays and other advertising are an invitation to treat and not actually a valid offer. Only when the customer fills out an order or purchases the item are the terms of the offer laid out.
The acceptance is considered absolute consent and acceptance of the final terms of the offer. In the event that different or additional terms are offered at this point, it would be considered a counter-offer.
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