LEGAL ASPECT OF

BUSINESS

Sub Topic: Contracts

SPECIFIC OBJECTIVES:

 Accurately explain the concept

contract
 Accurately explain the difference
between an agreement and a
contract
 Accurately explain the
characteristics of simple contracts
CONTRACT
 a specific legally binding agreement between
two or more people (or parties) in which
there is n agreement to do something in
return for a benefit (or consideration).
 Or
CONTRACT
 A contract may be written, verbal or
implied, but the advantage of a signed
written agreement is that the parties cannot
dispute either the existence of the contract
or its content.
 The key point about a contract as opposed to
a simple agreement; is that there must be an
intention to create legal obligations on both
parties.
THERE ARE TWO TYPES OF CONTRACTS:

 Simple contract
 Specialty contract
SIMPLE CONTRACTS
 Simple contracts are those created by or
entered into by individuals on a daily basis.
These contracts may be oral or written, using
simple wording and language. Simple
contracts usually involves matter matters
that one may encounter in their daily,
routine activities ; such as taking a taxi,
buying a movie ticket or accepting a small
loan from a friend or family member.
CHARACTERISTICS OF A SIMPLE
CONTRACT

 For a contract to be accepted as being

legally binding it must have certain
characteristics. These key characteristics
are:
 offer and acceptance
 intention to create legal relations
 consideration
 capacity of the parties
THERE MUST BE OFFER AND
ACCEPTANCE.
 There must be a clear offer and clear
acceptance for a contract to be binding. The
offer must be certain and it must also be
actually communicated to the person it is
intended to be made to. If a building firm
sends a written offer to rebuild a garden wall
and it is lost in the post, then the offer has
not been communicated to the person to
whom it was being made, so it is not a
legally binding offer.
CONT.
 Offers may be communicated, or expressed, in
many ways such as by letter, in a newspaper
advertisement m by fax or as a verbal
statement.
 If you put an advertisement in the local
newspaper stating that you were interesting in
buying a PS3 console game , you would not be
legally bound to buy games from all the people
who might contact you, because you had not
specified the person to whom you were making
the offer.

CONT.
 Offers can be either expressly or by
implication. An implied offer would arise if
you went to the dentist for some treatment:
you are agreeing in principle to pay a fair
price. If at the end you were handed a bill
and refused to pay, you would be in breach
of contract. An example of an expressly
made offer is a written offer to buy a house
at a certain price.
ACCEPTANCE

 For a contract to exist, the party to it that is

offered a proposal must accept it; that is,
willingly agree to it by communicating
acceptance to the offeror (the party that
made the offer) .
COUNTER- OFFER
 If proposing new condition the offeree is
making a counter offer. A counter offer is
not an acceptance . It kills the original offer.
 The original offeror may accept the counter-
offer or negotiations may continue with
further counter-offers until both sides reach
an agreement.
INTENTION TO CREATE LEGAL
RELATIONS

 Bothe parties must intent to create a

contractual relationship.
CONSIDERATION

For most contracts, consideration is

required- something is offered , and
something is given in exchange.
The contract creates rights and obligations for
both parties.
CAPACITY OF THE PARTIES

Both parties must be legally capable of making

a contract. An adult may make a contract.

 Someone who is mentally ill cannot make a

contract
 Someone who is seriously drunk
 Genuine consent- both parties must enter
the contract of their own free will.
MINORS
 Minors can create contract only to buy
educational goods and services as well as the
‘necessaries’ needed to maintain an
appropriate standard of living.