Contract Formation


Themain intention of any contract is to impose a responsibility on therespective parties. This is meant to safeguard either party frombeing disadvantaged due to failure or refusal by any party in meetingthe requirements and obligations spelt out in the agreement.Defaulters in a contract are liable for breaching the contract and alegal action can be taken (Sarshar, Agarwal,Bhaskar, &amp Mishra, 2009). The principles of contractformation are important in forming the basis for a structuredagreement, which can be used in a court of law. The principles ofcontract formation help in safeguarding of the parties while allowingmechanism for dispute resolution.


Thefollowing is a sample entered between Garden Choice LTD andKwesh Distributors has been a leading distributor of Nature FreshFarm products ranging from fresh pineapples, canned fruits andassorted juices. The company also sources for other fresh products atthe request of its customers who include 5-star hotels andsupermarkets. The company had temporarily halted distributionactivities in 2014 partly due the ongoing construction of Junta Roadwhich was causing huge delays in deliveries and wear and tear of ourvehicles, plus the high cost of fuel which badly affected the cashflow.

Distributorshipof Nature Fresh Farm products is a very profitable and muchsought after business. To avoid losing the distributorship and alsoto fully exploit the huge potential, we have decided to partner withan investor who has both the experience and financial capacity.

ThisPartnership between Garden Choice LTD and KweshDistributors has been agreed upon by both parties subject to thefollowing terms and conditions

  1. Kwesh Distributors shall

  • Pay 500,000 dollars that will be used to clear part of clearing the existing debt with Nature Fresh Farm in order to reopen the business.

  • Order the juices or any other product from Nature Fresh Farm in cash through the account of Garden choice Ltd.

  • Pay Garden Choice Ltd a commission of 15 percent of the gross margins of all the products purchased from Nature Fresh Farm through our account to Garden Choice Ltd on the products sold.

  • Avoid unfair business competition with the other Nature Fresh Farm appointed distributors.

  • Adhere to the regulations set in the distributorship agreement.

  1. Garden Choice Ltd shall

  • Ensure their Nature Fresh Farm account is reopened and allow the partner to use ‘Garden Choice Ltd’ as their trading name if necessary.

  • Clear the remaining debt with Nature Fresh Farm and ensure the distributorship agreement remains in force.

  • Support the partner in engaging our existing customers and opening new markets.

  • Facilitate the partner to exploit any new product distributorship lines from Nature Fresh Farm and other manufactures on agreed terms.

  • Conduct business in such a way that it will not adversely affect the partnership

Itis anticipated that once Garden Choice Ltd is fullyoperational, it will seek to partner more with Nature Fresh Farmin areas such as setting up exclusive outlets within and around thestate and both parties hereby agree to exploit that potential formutual benefit.

Thispartnership agreement will remain in force by mutual consent and hasbeen entered in to this day of —2015.

INWITNESS WHEREOFthe parties hereto have executed this Agreement under theirrespective corporate seals and by the hands of their proper officershereunto duly authorized.


GardenChoice Ltd KweshDistributors

Name :

Signature: Signature:


Signature: Signature:

Note:Where any legal jurisdiction, local practice or client requirementcalls for proof of authority to execute this document, proof of suchauthority in the form of a certified copy of a resolution naming theperson or persons in question as authorized to sign the Agreement forand on behalf of the Corporation or Partnership, must be attached forfuture use and verification.


Incontract formation, there exist various principles that are guided bythe legal parameters in a given country. The principles of contractformation include essentials of a valid contract, competent parties,offer, acceptance, consent and consideration. Competence is importantin establishing a contract for the parties involved will come up withan agreed and sound contract, which will minimize the potentialconflicts(Sarshar, Agarwal, Bhaskar, &amp Mishra, 2009).Acceptance and offer guides the drafting of the terms to be containedin the agreement while enabling the parties to examine the variousoptions before making their final commitment.

Manycountries have entrenched legislation on contract laws to conform tothe changing trends in the social, political and economic spheres.The changing trends demanded for unification of legal platforms tomatch the modern market economy. The contracting parties are requiredto act in good faith while observing the laid down regulations incontracting(Furmston,Tolhurst &amp Mik, 2010). The legal individuals with capability areskilled to perform civil functions independently. In the Chinese law,for instance, it is expected that an exchange of offer and acceptancesupport an agreement where the stipulations should be explicit andshould show a party’s readiness to be bound by an agreement onacceptance of the offer.

Thebasis of the US contract laws is primary and secondary. The primarysources consist of statutes that are largely the UniversalCommercial Code(UCC) such as the Precedents of the Courts. The secondary sourcesconsist of the Restatements that are established in the law but havepersuasive authority. Several requirements are necessary for theestablishment of a contract in the US including offer, acceptance,consideration, legal ability to contract and legal purpose (Sarshar,Agarwal, Bhaskar, &amp Mishra, 2009).An offer to establish an agreement is interpreted as engagingacceptance in any form through any logical medium in the prevailingconditions. In the US, a contract is deemed to have been entered whenthe last phase of the contract formation is over and takes placewhere the offer was accepted. The courts are given the mandate toalter or revoke a contract that is deemed unfair to either party andcan nullify consent to contract caused by duress. Disputes are alsolikely to emerge in the execution of the contract. It is thusimportant to protect the parties by introducing clauses in thecontract agreement. It should be noted that dispute resolution is animportant step that has not been adequately addressed in most of thecontract laws (Furmston, Tolhurst &amp Mik, 2010).

Fromthe case above, the parties are required to execute the contractaccording to the terms of the contract and the legal regime withtheir jurisdiction. Legal and regulatory regimes have significantlyinfluenced the nature of contracts taking place in all societies. Thenegotiators of the contract place themselves in a position ofinfluence as well as benefit to safeguard its interests. Theinvestors and executives have to thoroughly examine these issues toconform to their business objectives and environment. In fact, mostof the businessdealsfail because disagreement on the legal and regulatory frameworks. Ifthe deal materializes, it is important that the firm(s) stick to thelegal and regulatory aspects through which they were established. Itis also evident that business deals do not necessarily lead tosuccess. Financial and economic implications emerge since the firmsinvolved have to consider the amount of money to offer. Some firmshave debts and non-strategic assets that must also be considered.Moreover, the firms have to consider the likely revenue, risks andprospects that are likely to emerge in future. All these areconsidered in terms of monetary value (Baskinand Miranti, 1997).Restructuring may involve changes in policies, organizationalstructure, and culture.


Legalsystem is established in a way that ensures contractual obligationsare met in a desirable approach. The laws protect the consumer rightsand the interests of the parties involved in a contract. Contractsare largely founded on a legal structure that guarantee equal andfair benefits for all the parties involved in the agreement. Theessential components in the formation of a legitimate contractinclude legal terms, the contract offer, acceptance, consideration,and the aim to form a lawful agreement. The law of contract is oftencomplex and manifests the interests of any partnership. A contract isviewed as essential in human-social existence and gave people libertyenter into the contractual establishment as a fundamental socialgood. The globe is more globalized therefore, it is imperative toensure the contract laws are in conformity to the changing trends.The parties and/or their representatives should have an individualcapacity to enter into an agreement. This agreement allows lawyers toend the representation they were doing in case the process ends upunsuccessful.


Baskin,J. B., and Miranti, P. J. (1997). Ahistory of corporate finance.Cambridge, UK: Cambridge University Press.

Furmston,M. P., Tolhurst, G., &amp Mik, E. (2010). Contractformation: Law and practice.Oxford: Oxford University Press.

Sarshar,M., Agarwal, N., Bhaskar, N., &amp Mishra, N. (2009, January).ComparativeStudy of the Principles of of India, China, USAand France.Retrieved July 17, 2013, from National Law