Legal aspects of a business 2: Contracts

WELL, HELLO there. It’s me again. How are you all? Last week, we looked at offer and defined acceptance. This week, the focus will be on some important detail regarding the acceptance and other elements of a valid contract.

You will remember that acceptance was defined as a response of a favourable nature without qualifications. The acceptance is in response to the offer. The offeree must willingly receive or agree with the offer as stated or implied by the offeror. If one changes the offer, this is not a genuine acceptance but is a COUNTER-OFFER. For example, A offers to sell B his motor car for $550,000. B replies that the amount is too much and he would only be willing to pay $500,000. The reply is a counter-offer, not an acceptance.

Acceptance must be made in the way desired by the offeror. If he desires it by ‘bearer’, then it must be sent by bearer. If, however, the offeror does not state the mode of acceptance, the offeree should use the fastest means possible. If the post or telegram is used, it is seen as effective from the date of posting or of sending the telegram. If acceptance is by telephone or telex, it is only seen as acceptance if it is heard correctly, i.e., transmission must be clear.

Silence cannot be seen as acceptance. For example, P wrote to D on February 2, offering to buy a horse for $5,000, adding, “If I hear no more about it, I consider the horse mine at that price.” D did not reply. The horse was sold to a third party on February 25. In this situation, there was no contract between P and D since silence is not consent.

CONSIDERATION

This refers to anything of value that passes in exchange between the parties to a contract. It is regarded as the price for which the parties secure the legal obligations of others. It may be money paid, goods or services, an act or promise to do or not to do something. Consideration must be on both sides, i.e., there must be the giver’s consideration and the receiver’s consideration. Consideration may be:

(a) Executed, i.e., the price is already paid.

(b) Executory, i.e., the price is promised by one party to the other but not yet paid.

The rules of consideration are:

1. It must be real. This means that it must be well defined, have certain value and be transferable.

2. It must be possible. Consideration that is not possible is no consideration at all.

3. It must move from the contract. This means that it should arise as a result of the present contract.

4. It does not have to be adequate or considered to be enough.

5. It should not be passed. This means that it should not be from a passed contract.

6. It must be legal. This means that the courts will not allow a promise to sue where the consideration is immoral or contrary to the rule of the law.

INTENTION TO CREATE LEGAL RELATIONS

For a contract to be legal, the parties must intend that their agreement is to be legally binding. If they do not have this intention, they may have a simple agreement and not a contract.

CAPACITY

This refers to the eligibility of the person to enter the contract. As a general rule, all human beings have full capacity. However, there are some exceptions to the general rule. These are in the case of:

■ Minors – children under the age of consent.

■ Those under the influence of alcohol or drugs.

■ Insane persons.

■ Aliens during times of war.

■ Prisoners.

LEGALITY OF PURPOSE

The contract must not be for an illegal purpose or be contrary to the law; for example, a contract to commit a crime or civil wrong. A contract involving a field of ganja would not be valid in Jamaica at this time, since ganja has not been legalised in Jamaica.

Now, consider last week’s lesson and the lesson for this week. Use both to answer the following:

(a) Define the term ‘contract’. (2 marks)

(b) What differentiates a contract from an agreement? (2 marks)

(c) (i) What is meant by invitation to treat or trade? (2 marks)

(ii) Give TWO instances of invitation to treat or trade. (2 marks)

(d) Explain the terms ‘offer’ and ‘acceptance of offer’. (2 marks)

(e) Give an example of a counter-offer. (2 marks)

(f) Discuss TWO important points regarding acceptance. (4 marks)

(g) State TWO rules governing acceptance. (2 marks)

(h) Explain the term ‘capacity’ as used in the law of contracts. ( 2 marks)

Total marks: 20

Next week, my intention is to complete the elements of a valid contract and then go on to termination and breach of contract. The types of contract will also be considered. See you all then.