Below is a diagram of the contract process.
Offer
Validity of contracts
Acceptance
Consideration
The essential elements of the formation of a valid and enforceable
contract are summarised below. A contract is void or voidable if one
or more of the following features is lacking.
Offer
This is an undertaking by an offerer that he or she is bound
in a contract by the offer if someone accepts it. An offer may
be oral, written or implied.
Counter-offer
This is the rejection of the original offer and has the effect of
cancelling the original offer and replacing it with a new
offer. This is the process buyers and sellers go through to
come to an agreed price or agreement.
Invitation to treat or auction
This is an invitation for one to purchase a commodity
through bidding. The advertised price at the beginning of the
auction is not an offer, but the bid at the auction is the offer.
The auctioneer's request for bids is the invitation to treat. An
invitation to treat is a statement of the price and not an offe\r
to sell..
Acceptance
This is an agreement to purchase the item for an agreed
price, for example, after carefully examining the car that
Norman offered for sale, Norma finally agrees to purchase
it. Norma has unconditionally accepted to pay the agreed
price and Norman has agreed to accept the agreed price.
This agreement is considered to be acceptance.
Consideration
This is an agreement to abide by the terms of an acceptance.
A consideration is legally binding on both parties who
expect to benefit from a consideration, either in the form of
cash, goods or services.
Capacity of the parties
The parties entering into the contract must be adults of sound
mind and should not be incapacitated in any way, for
example, by drugs or alcohol, to prove to the law that they
have the power to enter into a contract.
Legality
Whatever is up for consideration must not be contrary to the
law. If the contract involves any form of immoral pursuits,
such as contracts
Example
Specific objectives
explain the use of document credit
distinguish between assuran and insurance
evaluate the principles on
which insurance is based
explain the various types of insurance policies
explain how insurance facilitates trade.
Norman advertised his 1994 Honda CRV for $700,000 and Norma
contacts him and offers him $600,000. They both agree after
negotiation to sell and buy for $650,000. The movement from
$700,000 to $650,000 is called a counter-offer and lega replaces
the original offer of $700,000
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to commit civil wrongs or crimes, or contracts involving
sexual immorality, it becomes illegal.
Good faith
This means that both parties should trust each other and neither
should influence the other unduly
Genuineness of the consent of the parties
There must be mutual agreement between both parties. Each
party entering into the contract must do so with free will and
should not be under any duress. One cannot force someone to
sign a contract for the sale of his or her home; there must be
consent to sell.
Activity 5.1
Paul and Paula work with the same accounting firm. Paul promised
Paula to take her to work every Monday morning when her
husband uses the family car out of town. Paul did not turn up one
Monday morning so Paula was extremely late for work and her
supervisor was very upset. Paula reported Paul to the boss,
hoping that he too would be reprimanded. Paula decided to take
Paul to court for breach of contract.
UKA
1 Advise Paula whether she had a contract with Paul
in the first place.
2 If she takes Paul to court, what will be the likely
outcome?
3
What is the difference between a contract and an agreement?
Feedback
1
2
All Paula had with Paul was an informal agreement,
not a contract.
The court would dismiss the case since there was no legally binding
contract.
Communication of acceptance
3
An agreement is a social arrangement between friends, whereas a
contract is a legally binding agreement between two parties.
There is a distinction between an invitation to trade, for
example, advertising the price of a car, and an offer of
acceptance. Silence does not amount to acceptance since
acceptance must be communicated. This may be done in various
ways, such as in writing, orally or at the fall of the hammer at an
auction.
Existence of a contract
A contract comes into existence when a distinct offer has been
unconditionally accepted. This means that all the terms of
agreement must be accepted by both sides.
Rules governing offer and acceptance
An offer must be communicated to the other party. The
offer may be made to a specific person or to the general
public. However, acceptance must be made by a specific
person or persons.
Many conditions may be attached by the offerer, but these
conditions must be made known to the offeree at the time the
offer is being made if the offeree is to be bound by them, for
example, laundry tickets and bus tickets which contain
conditions limiting liability for loss or damage.
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Acceptance has to be unconditional, that is, an ofter
must be accepted m with all its conditions. One is allowed
to participate in counter-
offer, but there must be acceptance by both parties before a
contract.
emerges.
Acceptance must be within an agreed time.
An offer lapses on the death of either the offeree or the
offerer before acceptance. However, if a contract was
constituted before the death of either party the contract is still
valid. The contract is void when the acceptance time has
expired.
An offer lost in the post cannot be regarded as an offer,
since it has not reached its destination.
Acceptance is effected when an acceptance letter is
actually posted. An acceptance lost in the post and which
never reaches the offerer is still valid since a contract existed
from the time of posting by the offeree.
Consideration
(Consideration should be either a good or valuable
exercise since it is the price one pays to secure the legal
obligation on the part of the other. There are rules governing
consideration. At all times, consideration must be:
real, that is, it should be well defined. One should be able to convert
it to cash or something of value. It should not be something that
binds only one party to the terms of the contract.
■lawful, which means that the subject should be a lawful act,
since an unlawful act would be void.
executed and executory. This means that a contract is either
executed or executory, as explained below.
Executed
A contract is executed when both parties have completed their
part as required by the contract, for example, Norman agrees
to sell Norma his motor vehicle and Norma agrees to pay the
price asked by Norman. They exchange the motor vehicle for
money, the possession of the motor vehicle and the right to
the motor vehicle are transferred to Norma, and the contract is
executed.
Executory
If Norma agrees to buy the motor vehicle and they both
agree to exchange the following month the right of the good
is transferred, but not the possession, and the contract is
executory. The executed contract is a clause in possession and
an executory contract is a clause in action.
Types of contracts
There are three types of contracts: simple, specialty and
contract of record.
Simple
Simple contracts are also referred to as parol contracts. These
contracts do not need a written deed.
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Consideration is a very important element in the
simple contract. Ordinary people and
businesspersons make simple contracts every day,
such us entering a store to purchase an item, hiring a taxi or
taking. public transport. These are examples of implied
contract since the store making the offer to sell its goods
to whoever needs them has opened its doors, and the
prospective customer has entered with the intention to
buy. If the customer chooses something, he or she needs
to pay the price and walks away with the item. Simple
contracts are the most common form of contracts experienced.
Simple contracts may be in writing, oral or implied.
However, there are some simple contracts that must be in
writing. These include:
contracts of life and general insurance;
promissory notes, and bills of exchange; assignments of
copyright.
Specialty
The law of contracts requires a deed for the formation of certain
agreements, such as the sale of land, the lease of land for more
than three years and hire purchase agreements. These are
contracts that must be in writing. They deal with the sale of
land or special goods, insurance and mortgages. Some
important features of specialty contracts are given below.
The contract must be signed by both parties and sealed.
If there is an intention to seal, no mark or impression is
necessary. There may be attestation by witnesses, which is
customary although not always necessary (see previous
statement).
A deed or contract must be delivered by the offerer. This means
the deed must be handed over to the offeree, so that both parties
own a copy of the contract.
Discharge or termination of contracts
A contract may be terminated or discharged when one party
ceases to be bound by the obligations of the contract. Below
are some methods. of discharge.
Performance
This is when the contract has been executed in every respect.
Both parties have done what they promised to do and the
contract has climaxed.
Breach
This is when one party fails to do what he or she promised to
do in the contract. If one party breaks a side of the contract by
not doing what he or she is to do, there is a breach of contract.
Legalisation or impossibility
A contract is terminated if it required one party to do
something prohibited by law or if the undertaking is
unrealistic and unacceptable according to present
standards of human achievement. The original contract was
illegal.
Example
Contract of record This is a court order that is imposed and
enforced by the court, such as parental obligations or
repossession by a bailiff. A court of law orders someone to do or not to
do something- a court may order a business to cease operations.
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Lapse of time
The Limitation Act indicates that an action within a contract
must be concluded within a certain time. By not meeting this
deadline, the contract is terminated.
By mutual agreement
The parties may agree to cancel the contract, possibly as a
result of: waiver, that is, the parties give up their rights
before performance; creation of a new contract to substitute
the old contract; accord and satisfaction.
By merger
This refers to the creation of a higher grade of contract to
update the present contract.
Business documents
There are some things in your life that require a tangible
record, such bech as your birth certificate. A business also
requires records of transactions and agreements.
dred go
Business documents are forms, transaction records and legal
papers used in a business. They are used to keep official
and unofficial records of all transactions in a business. They
make the communication process possible and are utilised
for reference purposes. In many cases, if there are no records,
then the business risks losing a lot of money. Documents
also prevent confusion that would result if a
businessperson forgets important information. People also
feel more comfortable and willing to trust others if there is a
document that substantiates an arrangement or agreement.
Without this, business activity might not take place.
Some trade documents are explained below, with examples.
Catalogues
A catalogue is a document that gives detailed descriptions of
product(s). The details include size, colour, quality, quantity,
price and the reference number for each item.
Quotations
A quotation provides details of a commodity or service
requested by a prospective purchaser. The supplier sends
this document to the purchaser after receiving the letter of
inquiry, which is a letter sent to the supplier by a purchaser
inquiring about the goods and requesting a quotation or price
list, along with information on terms of sale.
Purchases requisitions
This is a document sent by the purchaser or buyer to the
seller, requesting goods that may be available.
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From:
REQUISITION FORM
To:
Quantity Description of
goods
Catalogue Purchase order
Unit price
Total
no.
Requisition dept.
Name:
Grand total
Signature
Date
Pro-forma invoices
A pro-forma invoice is an invoice given before the original
invoice, stating the quantity, unit cost and total, along with
the description of the commodity.
PRO-FORMA INVOICE
Quantity
Description
Unit cost
G.C.T.
Total
Invoices
An invoice is a document or bill sent to the purchaser
by the supplier, giving details of the purchase. In
business transactions, five copies of the invoice are
prepared, each in a different colour. They are dispatched
as follows:
One copy for the customer.
One copy for the sales department.
One copy for the accounts department.
One copy for the storehouse to dispatch.
One copy for delivery that does not include the price.
No.
From:
To:
INVOICE
Date:
The phrase 'Errors and Omissions Excepted' (E&OE)
on an invoice indicates that if an error or omission is made, it
will be corrected later on.
Credit notes
A credit note is a document to inform the customer about
amounts due to
them as a result of an overcharge that
could be by typographical error or goods damaged
in transit.
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From:
To:
Order no.:
CREDIT NOTE
Reason:
Date
Quantity
Description Catalogue no.
Total
Invoice no.:
Debit notes
A debit note is a document used to add amounts undercharged or
omitted from the original invoice.
To:
From:
Reason:
Date
DEBIT NOTE
Date:
Order no.:
Description
Price charged
Actual price
Total outstanding
Please submit by cash or cheque before 30 November 201_.
Thank you.
Signed:
N. Samuels
Statements of accounts
The statement of accounts is the document sent to the debtor or
purchaser by the creditor or supplier, giving a summary of
the purchasing debtor's transactions with the creditor or
supplier over a given period of time.
STATEMENT OF ACCOUNTS
XYQ Supplies Ltd.
148 Slype Drive
Kingston 18
Jamaica
In account with:
Date:
May Jane
140 Jolly Drive
May Pen
Clarendon
Jamaica
Date 2011 Invoice no.
Purchases
$
Payment returned
Balance
16 Jan.
B-7841
521,550.00
260,755.00
260,795.00
28 Feb.
C-7984
500.00
261,295.00
28 March
Z-4878
1250.00
Amount
259,045.00
259,045.00
owing
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Tenders
A tender is an offer of a price for acceptance. The
contractor tenders. for a contract, for example, to build a
house and decides the price he or she is willing to offer.
Stock cards
A stock card is a document used by a business to keep a record
of the stock. It keeps records of stock received and stocks issued
and the balance at any given period of time.
Item:
Maximum:
Minimum:
STOCK CARD
Date Receipt
Issue
Balance
Quantity Invoice no. Suppliers | Quantity Requisition no.
Documents used in transporting goods
Since businesses trade locally and internationally, there are
specific documents to be used for external destinations. These
include: shipping note, landing certificate, bill of sight, airway
bill, bill of lading and export declaration. Details of others are
given below.
Destination sheet
A destination sheet is a schedule of deliveries to be made to customers by a
firm. The destination sheet is utilised by firms that make any
deliveries. These firms therefore control a large fleet of vehicles.
Legal aspects of business 131
DESTINATION SHEET
From: Dispatch and Control
Date:
Name
Name of
and no.
driver
of vehicle
Destination Contents Mileage
of delivery
distance
Date of delivery
Recipient's signature
Delivery note
The delivery note is a document used when the firm takes
responsibility for transporting the goods to the customer. It
shows the number of the note, the name and address of the
supplier, the name and address of the purchaser.
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To:
Date:
DELIVERY NOTE
No.
From:
Order no.
Terms of payment: 100% at date of delivery
Please receive the following items:
Quantity
Delivered to:
Description
Unit price
Amount
Certificates of origin
The certificate of origin is a document used in international
trade as proof of origin of the commodity. It
accompanies duty-free goods to confirm that they
were produced in the exporting country, to prevent
non-member countries from taking advantage of the free
trade agreement.
Airway bills
This document is used in the transportation of goods or other
commodities by air. If you receive or send items by courier
service you are required to fill out an airway bill.
Instruments of payment
Since trade is the exchange of goods and services between
buyers and sellers at an agreed money value, it means that
commodities bought must be paid for. The method of
payment for goods and services is dependent on many
factors, including:
the sum to be paid (the amount);
the safety and security;
the distance;
the urgency;
the date due.
Legal tender
This refers to cash or coins issued by the bank, or cheques
that the bank agrees to honour as payment.
Money orders
A money order is also known as a bank money order. It is
used as a method of payment which is sold by banks to
persons who wish to make overseas payments for goods and
services to suppliers. It clearly states the amount to be paid
and the name of the person or business it is to be paid to.
Example
Cash payment
Depending on the amount to be paid, it may be made in cash
or coin. A cheque may be used if the seller will accept it
(since a cheque is only the representative of money).
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National Commercial Bank Kingston, Jamaica
Pay to the order of
The sum of
9 May 2011
NOT valid for amount over three thousand US dollars.
two thousand dollars and fifty cents.
N. Blackwood, 2 Caenwood Road, Kingston S. Jamaica Sender's name
and address
Read notice on back before cashing.
2681-3942-781
Authorised no.
N.C.B
82431
Authorised officer
A6789
Authorised officer
Bank drafts
A bank draft is a document drawn by one bank on another. There
are two main types: sight draft and bill of exchange.
A sight draft enables the exporter to send the bill of lading to
the importer's bank and the bank will hand over the
documents against the payment. It is therefore a cheque
drawn on a foreign bank or an overseas branch of a local bank.
A bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to
pay on demand, or at a fixed or determinable future time, a
certain sum in money to or to the order of a specific person or
to the bearer.
National Commercial Bank
Kingston, Jamaica
Pay to the order
No.
Date
of:
The sum of
To: BNS
Montego Bay
St James
$2500.00
US dollars
Authorised no.
N.C.B.
F681
8421
Authorised officer
Authorised officer
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Documentary credit
Documentary credit enables the exporter to receive
money for the goods before the documents are given to the
importer.
Import license
An import license is an international document given by
the government to the manufacturer or trader, giving
permission to trade with other countries. It gives information
on:
■importer name and address; ☐goods being imported;
☐the country of origin;
description of goods;
☐name and address of the trader or user.
Export license
This is a document that must be obtained by individuals
or companies who wish to sell their goods to other
countries.
Debit cards
A debit card is a card given to all customers of a bank who
wish to get one. A debit card is given to customers with
savings or current accounts. The card may be used at the
point of sale (POS) where the seller has a machine connected
to the network. It does not attract interest.
Credit cards
Credit cards are given to customers of financial
institutions, banks or credit unions who qualify for credit
from that institution. The customer has a limit and cannot
exceed that amount. The amount used must be repaid by the due
date or payment and an interest rate are charged.
Telegraphic money orders
The telegraphic money order allows the post office of the
sender to send a telegram advice to the receiver's post
office, for an additional fee.
Postal orders
A customer may purchase a document known as postal
order at the post office up to a specific sum. The sender will
have to fill in the name of the payee and the post office to
which the order is being sent for payment. This method
may be used for both local and foreign payments.
Cheques
A cheque is a document written by the drawer ordering the bank
to make payment of a specific amount to the payee.
National Commercial Bank
New Kingston
Pay to the order of
The sum of six thousand dollars
Owen & Naomi Binns
0843-9611-8429
No.
$6000.00
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Letters of credit
This is a letter of assurance given by the importers' bank
to pay money on the importers' behalf to an exporter. It is
also known as a form of documentary credit. The letter may
be revocable or irrevocable.
National Commercial Bank
Kingston, Jamaica
14 May 2011
SWIFT Manufacturers
106 Joe Mary Lane
Kingston 50
Dear Sir/Madam,
This
is an excellent customer of our bank. She has been one of our treasured
customers banking with us for close to twenty-five (25)
years. So far she has maintained excellent records and credible
credit history.
We assure you that goods will be paid for when the
money becomes due.
Sincerely yours
Bank Manager
Gloria Spice
Promissory notes
These are instruments used in indicating the details to pay the
creditor within a certain time. The promissory note is an
unconditional promise made in writing by a debtor to a
creditor, signed by the debtor, indicating to pay on demand, or
at a fixed date or
determinable future time, a certain sum of money to or to the
order of a specific person or to a bearer.
Date:
Amount:
PROMISSORY NOTE
Place:
Six months after date I
promise to pay
or order the sum of ($---------)
for amount received.
Signed
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