Question

Leno Computers manufactures tablet computers for sale to retailers such as Fallon Electronics. Recently, Leno sold and delivered 200 tablet computers to Fallon for $20,000 on January 5, 2017. Fallon has agreed to pay for the 200 tablet computers within 30 days. Fallon has a good credit rating and should have no difficulty in making payment to Leno. (a) Explain whether a valid contract exists between Leno Computers and Fallon Electronics. (b) Assuming that Leno Computers has not yet delivered the tablet computers to Fallon Electronics, what might cause a valid contract not to exist between Leno and Fallon?

Short answer

The contract would be invalid in case Two, and would be valid in case One.

Step-by-step solution

Meaning of Valid Contract

A valid contract is a legally binding and enforceable agreement. In a valid contract, both parties are bounded legally for the fulfillment of their obligations. A contract must be accepted by both partiesbefore entering into contractual obligations.

Validity of a contract is based upon the agreed conditions and their fulfillment

A contract must fulfill five requirements to be valid:

• The contract is commercially viable:It means that there should be some consideration in return for goods and services provided by one party to another.
• The contract has been approved by both parties:It means that one party agrees to purchase a particular product or service and another party agrees to sell it to that party.
• It is established that the parties' rights are identified:It means that the purchasing party has the right to the particular product and the selling party has the right to the consideration in return.
• The terms of payment are specified:It means that the purchasing party agrees to pay some consideration in return for the product and services.
• It's quite likely that the consideration will be collected:It means that the selling party has received the consideration before they deliver the product or service to the purchasing party.

1. In case one, the contract is valid because they fulfill all the above conditions and perform their obligations.
2. In case two, the contract is invalid because they have not performed their obligations, and the conditions are not fulfilled.