Legal aspects of a business 1: Contracts
H ELLO ONE and all. This week, we will begin Section 4: Legal Aspects of Business. This section includes contracts, business documents, instruments of payment and insurance. Let us begin with contracts. When we have finished considering this topic, you should be able to do the following: 1. Explain the concept of contract. 2. Describe the characteristics of a simple contract. 3. Differentiate between a simple contract and a specialty contract. 4. Determine the validity of various contracts. 5. Distinguish between offer and invitation to treat or bargain. 6. Explain the conditions under which offer and acceptance are communicated.
7. Outline ways by which contracts may be terminated or discharged.
Let us begin by distinguishing between the terms ‘contract’ and ‘agreement’. A contract is defined as any agreement between two or more persons to do or not to do something; it is legally binding or enforceable by law. The fact that a contract is legally binding and enforceable by law means that if one party to the contract suffers injury, he may choose to use the court system to get justice.
The words ‘contract’ and ‘agreement’ are not synonymous. All contracts are agreements, but not all agreements are contracts. A contract is more serious than an agreement since it can have legal implications in a court of law. Agreements are normally made by family members and close friends and are not legally binding, whereas contracts are normally legally binding.
THE PARTIES TO A CONTRACT ARE:
1. The offeror – the person who makes the offer or the bid 2. The offeree – the person to whom the offer is made 3. The acceptor – the person who unconditionally accepts the offer.
It is important that you understand the elements or features of a valid contract. If one (or more) of the elements is missing from a contract, the contract may be void or voidable. These terms will be explained later on in our lessons on contracts.
THE ELEMENTS OF A VALID CONTRACT
1. Offer and Acceptance of Offer The offer is made by one person and the acceptance by another person. An offer is a proposal or bid made by one person to another. The acceptance is a response of a favourable nature without any considerations.
An offer can be stated orally, be written or implied from the conduct of the person making the contract. If the post is used, the offer is complete only when it actually reaches the offeree. An offer lost in the post is not an offer.
The offer may be made to a specific person or to people in general. When it is made to people in general, it can be accepted by anyone. An offer can be revoked or withdrawn at any time before acceptance and must be communicated to the offeree.
INVITATION TO TREAT OR TRADE
A genuine offer must be distinguished from an invitation to treat or trade. An invitation to treat is an invitation to make an offer. It does not constitute a contract. For example, a shopkeeper who displays goods in his shop window with a price tag on them is merely inviting the public to make an offer at the price on the tag. Other examples of invitation to treat are in the cases of goods advertised for public auction and tenders for goods by an institution. Also, in instances where information is being sought, no contract exists, therefore, neither buyer nor seller is under obligation.
LAPSE AND REJECTION OF THE OFFER
An offer may lapse or cease to exist if the time given has expired and if no additional time is given, when it is rejected by the offeree and on the death of either the offeror or the offeree before acceptance.
Rejection of an offer occurs when a person refuses to accept the offer or makes a counter offer varying the terms of the original offer.
That’s it for now, friends. Next week, I will discuss some more on acceptance as a feature of a valid contract. I will also look at other features of a valid contract.
It would be wise for you to do some reading on the elements of a valid contract and also to do some research on the other specific objectives listed above. Take care until next week.