Legal aspects of a business 3: contracts

HI. IT’S POB time again. This week, we will complete the elements of a valid contract and then look at mistakes in contracts and termination or discharge of contracts. The final part of the lesson will consider, briefly, breach of contracts. First, let us consider POSSIBILITY as an element of the valid contract.

POSSIBILITY

This means that all parties to the contract must be capable of performing the acts in the contract.

GENUINENESS OF CONSENT OF THE PARTIES

This is also referred to as GOOD FAITH. Each party must have entered into the contract of his own free will. One should not have entered the contract through undue influence, duress, fraud or misrepresentation. A contract entered into under duress, means that a person is forced to enter a contract against his will. Undue influence means that physical and/or mental pressure is applied, e.g., blackmail. Misrepresentation refers to a false statement which induces a person to make a contract.

We have now completed the elements of a valid contract. Let’s move on.

MISTAKES IN CONTRACTS

A mistake is an incorrect idea or opinion, things incorrectly done or thought.

There are three types of mistakes.

1. The common mistake: This is where both parties make the same mistake. For example, Mr Singh sold a car to Mrs Whiteman. Unknown to both of them, the car was stolen property.

2. The mutual mistake: In this case, both parties make a mistake, but the mistakes are different. For example, Mrs Carey has two Nissan cars – a grey and a white one. Misha agreed to purchase one of the cars. However, she was most upset when she discovered that she was being sold the white car instead of the fully loaded grey car. At no time did Mrs Carey intend to sell the grey one.

3. The unilateral mistake: Only one party makes a mistake. The other party is aware of it, but does not reveal it. For example, Sandra buys a pair of gold earrings from Maria at a very high price. Maria is aware that the earrings are not genuine, but Sandra is ignorant of this fact.

The examples of mistakes used above are taken from CXC Principles of Business by Karlene Robinson and

Sybile Hamil.

TERMINATION/DISCHARGE OF CONTRACTS

Contracts can be terminated or brought to an end under the following circumstances: By:

1. Performance – This is where both sides have completed what they agreed to do.

2. The subject matter ceasing to exist – for example, if you agree to buy a horse, which dies before you take possession of it.

3. Death or bankruptcy – In this case, the dead person’s debts may still have to be paid and, in the case of bankruptcy, it must be proven.

4. Notice – This is so, for example, in the case of a contract of employment which can be brought to an end by either party giving the required length of notice.

5. Lapse of time – If a time limit was a part of the agreement

6. Legislation – In this case, something which was legal at the beginning becomes illegal by law before it can be performed.

7. An agreed event occurring – The parties would have agreed that a particular event, if it occurred, would nullify the agreement.

8. Frustration – This is where an act, though possible at the beginning, becomes impossible later on.

9. Government interference – This may strike at the root of the contract and cause it to be terminated.

10. Mutual consent – Both parties agree to cancel the contract before it is completed.

11. Breach – In this case, the injured party must be the one to decide that the contract should come to its end.

BREACH OF CONTRACT

This is also known as REPUDIATION, and occurs when one or more parties to the contract break a condition or conditions of the contract. What can be done if a contract is breached?

1. The other party to the contract may discharge the contract.

2. Redress can be sought in a court of law.

3. Both parties can agree to redo the contract or dissolve the contract.

Well, friends, that’s it for this week. Next week will be our final lesson on contracts. We will discuss the types of contracts and end by considering some questions on contracts.

Bye for now.