Legal Aspects Of Business

 This is a legally binding agreement between two or more persons that is enforceable by law. 

 The difference between a contact and a social agreement is that the contract:

1) Must be enforceable by law

2) Must give rise to rights and obligations

3) Parties must have the intention and ability to create a legal relationship between

them.

What makes a contract different from an agreement?

A contract requires not only an agreement between parties but also something of value must be passed from one party to the next to make the contract binding. 

For example, you offer to sell a friend your used textbooks for $1000.00. After inspecting your textbooks the friend agrees and pays $1000.00. The $1000.00 paid here is the consideration i.e. something of value that is passed from one party to the next.  Consideration is the price paid for a promise.  You promised to let your friend have your textbooks if he paid $1000.00. This $1000.00 makes the agreement binding.  You are therefore obligated to deliver the books to your friend and cannot decide to sell the books to someone else or to ask for a higher price.

Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this offer and mow the lawn. The work done here is an act of forbearance. You are giving something of value to your neighbour to receive payment for the job. The consideration in this case is the work done by you. It is the price that you have paid for the promise to be paid money for the job.  Consideration passes from promise to promise.

Find and write definitions of:

(i) offeror 

(ii) offeree

CHARACTERISTICS OF A CONTRACT

1. Offer and Acceptance

An offer has to be made and there must be clear and unconditional acceptance.

These may be done orally, in writing or by conduct.

2. Form or Consideration

This is the price for which one party gets the legal obligation e.g. Charles offers

Mike $5,000 for his car. The money is the consideration.

3. Capacity of the parties

In the eyes of the law the parties must be able to bind themselves to a contract. E.g.

not be insane or underage.

4. Legality

The contract should not be illegal.

5. Good faith

There should be no fraud/undue influence on any party.

6. Genuineness of the consent of parties

All parties should agree and enter of their own free will.

 7. Possibility

Parties must be able to carry out their side of the contract.

Types of Contract

·        Simple Contracts

·        Specialty Contracts

·        Contracts of Record

TYPES OF CONTRACTS

1. Simple contract

This requires no special form and may be written or oral.

2. Specialty contract

This is also called a deed or a contract under seal and must have the following

Seal

Signature of parties

Attestation by one or more witnesses

Delivered to all parties involved

E.g. Hire purchase agreements, sale of land, insurance contracts, mortgage contracts

3. A contract of record

This is a court judgment requesting parties to abide by a certain obligation.

Read the text below and choose the best answers.

Focus: key vocabulary, topic information, reading

comprehension, multiple choice

Suggested time: 40 minutes

(1) INSURABLE INTEREST

In order to insure something you must have an insurable interest in the item.

You must benefit by its existence and suffer financially by its loss, e.g. you can

insure your house but not your neighbour’s house.

(2) UTMOST GOOD FAITH

When completing a proposal form for insurance, you must answer all the

questions truthfully and disclose all material facts/relevant information.

(3) INDEMNITY

You cannot make a profit out of insurance. Compensation is limited to the value

of the damage suffered irrespective of the level of cover. The aim of insurance

is to place the insured in the same position financially as before the loss and not

in a better position.

(4) SUBROGATION

When an insurance company compensates the insured for the loss, it can proceed

to claim compensation from the person who caused the loss; once compensation

has been paid, the damaged item becomes the property of the insurance

company.

(5) CONTRIBUTION

If a person has the same risk insured with two companies, he cannot claim

the full amount from each company. Each company will contribute towards

the loss in proportion to the sum insured with it.

1. What must you have if you want to insure something?

a) your neighbour’s house

 b) an insurable interest

c) a financial loss 

d) a shining sun

2. How must you answer questions on an insurance proposal form?

a) slowly 

b) quickly

c) truthfully

 d) untruthfully

3.Who owns the damaged item once compensation has been paid?

a) the insurance company 

b) no-one

c) the person who caused the loss 

d). the insured person

4. Should you make a profit out of insurance?

a) Yes b) No

5. Are you allowed to claim for full compensation from two companies for the

same risk?

a) Yes b) No