RM ACCOUNTS EDLegal Aspects of business

CONTRACTSLegal aspects of businessCXC – CSEC Principles of Business

A CONTRACT ISA legally enforceable (a), binding (b) agreement between two or more parties whereby something is done, or promised to be(c) done, given or promised to be given.

AN INVITATION TO TREAT IS

A statement or action to persuade someone (else) to make an offer for something that you have.

OFFERACCEPTANCE

A CONTRACT

AGREEMENT

A CONTRACT IS VALID ...only if all the following characteristics are present:

*OFFER

* ACCEPTANCE

*CONSIDERATION

*CAPACITY

*LEGALITY

*POSSIBILITY

*GOOD FAITH

AN OFFER ISA proposal made by one party to another party.

·It can carry as many conditions as is necessary

·It must be communicated to the intended party

·It must be certain (no “mays” or “mights”)

·It can be expressed

·It can be implied

ACCEPTANCE One’s willingness to agree to the conditions of an offer.

·It must be unconditional·It must specifically expressed·It must be certain

CONSIDERATION

The price for which one party secures the legal obligation on the part of the other party.

• It must be valuable (good) – benefits must accrue to one and detriment to the other.

• It must be present - motive for benefit receivable cannot be based on a past

action.

• It must be real - Something definable and transferrable

• It must be lawfulSomething not considered illegal in action or form

• It can be executed (done immediately) or executory (done in future)

CAPACITYThe ability to bind oneself in a legal agreement.

The following are not considered capable of binding themselves:

• Minors• Inebriates• Incarcerated• Senile• Addicts (under influence)

Other clauses• Legality • The act must be acceptable within the law

• Possibility• The act must be one that can be performed.

• Genuineness• The consent must be by one’s ‘own free will’.

• Good Faith• The consent must be without duress, fraud, mistake or

misinterpretation.

TYPES OF CONTRACTS

·SIMPLE CONTRACTS·SPECIALITY CONTRACTS·CONTRACT OF RECORD

A SIMPLE CONTRACT ISA simple legal agreement between two or more parties.

• It has no special form· It can be by word of mouth· It can be written· It can be implied

e.g. bus ticket, a hair cut, bill of exchange

A SPECIALITY CONTRACT ISAn agreement made under seal or by deed.

·It has a special form and/or format·It must be signed·It must be sealed·It must be delivered

e.g. lease of land, hire purchase, bill of sale

A CONTRACT OF RECORDA judicial order imposed on a given party by the court.

· It is non-voluntary but obligatory

· It must be handed down by the Law Court

· It must be written

· Its imposition is a penalty of refrain or fine

e.g. bond of peace, restraining order, child support

DISCHARGE OF CONTRACTSLegal aspects of business

Discharge of contract….

occurs when one party (the promisor) ceases to be bound by its obligations (the promise) to the other party (the promisee).

it is sometimes referred to as the termination of the contract.

Contracts are discharged by …• Performance

• Each party fulfilled all aspects of their obligations as agreed.

• Breach• One party fails to fulfill its obligations as promised

• Renunciation • One party, by its actions, refuses to perform its obligation or part thereof

• Agreement • The parties mutually waive their rights before the act was performed.

• Lapse of time• The period (deadline) within which the act was to be performed has passed

• Bankruptcy• The party, with the financial obligation, has no funds to complete their part

• Death • The obligating party dies (its estate is however expected to continue, except

where that obligation was a personal service).

Contracts can be frustrated…• If a change in the laws (of the country) make the obligating

act illegal [this is also referred to as IMPOSSIBILITY].

• If a severe illness prevents the obligating party from performing the act.

• If a prerequisite action has not be taken, thus preventing the obligating party from performing the act.

• If a necessary item/object that would validate the agreement has been totally or partially destroyed.

….• Businesses enter into many contracts during a year:

• Agreements for short term credit (with suppliers)• Selling goods on credit (to its customers)• Use of cheques to pay debts• Hire purchase agreements• Fulfillment of purchase orders• Buying plane tickets• Sale/purchase of land• Sale/purchase of assets• Taking the taxi• …etc.