Principles of Business

LEGAL ASPECTS OF BUSINESS

CONTRACT
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.

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.

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.
 Principles of Business

LEGAL ASPECTS OF BUSINESS

PARTIES TO A CONTRACT
1. Offeror
This is the person making the offer.
2. Offeree
This is the person accepting the offer.

OFFER VS. INVITATION TO TREAT

An invitation to treat is only a declaration of the intention of a person(s) to make an offer e.g. an
ad on tv./newspaper. However the actual offer is what can be acceptedand what the offeror is
bound by.

Counter Offer
This is an alternative offer made by the offeree to the offeror. However it does not have to be
accepted.

RULES OF OFFER AND ACCEPTANCE

1. The offer must be communicated to the other party.
2. The offer may be general but must be accepted by a specific person(s)
3. The offer can be revoked at any time before acceptance unless consideration has been
made to keep the offer open.
4. All conditions must be known to the offeree.
5. Acceptance must be unconditional. If not, a refusal and a counter offer is said to have
been made.
6. Acceptance must be made within a reasonable time.
7. An offer lost in the post is NOT AN OFFER.
8. Acceptance is made when the letter is actually posted.

N.B Offer and acceptance may be communicated in writing, spoken or by conduct

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LEGAL ASPECTS OF BUSINESS

TERMINATION/DISCHARGE OF CONTRACT
1. Mutual agreement
Satisfaction
Waiver (parties give up their rights under the contract)
New agreement formed in place of old
2. Breach
One party breaks his side of the contract.
3. Performance
Contract is fulfilled.
4. Impossibility
Contract was illegal
One or both parties find it humanly impossible to comply
5. Frustration
Unforeseen circumstances cause one or both of the parties to be nable to fulfill their
obligations.
6. Death
7. Bankruptcy
8. Lapse of time -Non-performance during a specified time period.

Remedies for breach of contract

1. Damages – The affected party can sue for damages, for example, to recover loss of
income.
2. Specific performance – the court can order that the party fulfill its contractual ibligation
by enforcing an order for specific performance.
3. Injunction – this is a court order prohibiting a party from performing an action, for
example, an imposition by the court to discontinue production of a harmful product.
4. Restitution – this involves returning any money or property already given in the contract,
so as to restore the affected party to their position before the formation of the contract.

Legal Issues
Conditions for a Valid Contract

(Oral Contracts)
The features must be present, active, enforceable or functional
Performance must be possible
Time must not lapse
No minor, mentally ill or learning disabled person should also be noted
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LEGAL ASPECTS OF BUSINESS

(Written Contracts)
It must have a date
It must be signed, sealed and delivered
It must be witnessed
There must be no factual mistakes in it
Performance time must not lapse
It must be legal or legitimate
Performance must be possible
It must be registered
It must be reasonable and fair

In addition to all the above, the following should also be noted:

● Any exclusion clauses must be made clear
● Contract is invalid if goods sold/bought were stolen property, whether buyer was
aware of it or not
● Failure to comply with statutory requirements make the contact invalid
● If parties become insolvent contract can be voidable/invalid.

Difference between a void and a voidable contract

A void contract cannot be upheld in a court of law i.e. it is unenforceable (because it may
contain components that are illegal) e.g. sale of illegal drug. A voidable contract is one that has
legal effect and can be brought to court, but may be set aside because of the condition(s) under
which the contract came into being.

Reasons contracts are voidable

1. Misrepresentation – an important statement made by one party is not true.
Misrepresentation can also be innocent (made in the belief that it is true) or it can be
fraudulent (one party has knowledge that there is something that is not true).
2. Duress/Blackmail – the person was threatened or forced to enter into the contract.
3. Undue influence – one party pressured the other party into entering the contract. This
often occurs when there is a relationship of power and the person in the ‘higher’ position
takes advantage of the situation.