valid and appropriate agreement in any business
UNIT OUTCOMES COVERED:
5.1.1 Explain the different types of business agreement and the importance of the key elements required for the formation of a valid contract.
5.1.2 Apply the rules of offer and acceptance in a given scenario, also considering any impact of new technology
5.1.3 Assess the importance of the rules of intention and consideration of the parties to the agreement
5.1.4 Explain the importance of the contracting parties having the appropriate legal capacity to enter into a binding agreement
In order to have a valid and appropriate agreement in any business enterprise or organisation, there should clear understanding of terms of contract between both parties before entering into a suitable, legal and binding contract. Contract can be in different shapes and sizes, some contract involve large sum of money while other may be in small amount of money depends on the kind of business. Also some contract may be for a short period or long period of time depending of the duration.
A business agreement is defined as a written document signed by two or more people that contain the details of the business venture. A business agreement is also known as contract, a contract is defined as a binding agreement between two or more parties (individual, businesses, organisation or government agencies who have come together to exchange something of value. A contract may be inform of written or verbal.
A Contract is a binding agreement between two or more parties to do, not to do or promise to do something. Contract can in many forms, they can be written, verbal implied or express and legally enforceable. We have different kind of contract. E.g. Employment contract, mobile phone contract, tenancy agreement and partnership.
TYPES OF BUSINESS AGREEMENTS:
Unilateral contract is defined as one sided contract where by one party known as offeror, makes a promise in exchange for an act by another party known as offeree. In unilateral contract only one party assumes an obligation or responsibility under the contract. For example, if Mr Cole promises to give $120 to anybody who finds his wallet or if a John promise to give his son $400 if he passes his examinations. It shows that it is only one party has assumed an obligation to pay another party if they carry out an act. Also agreement between the estate agent and owner of a property is another good example of a unilateral contract. I.e. the owner of the property promised to pay the estate agent certain amount of money if the estate agent helps the owner to sell the property. In Balfour V Balfour (1919) the agreement was made between husband and wife, the husband was due to return to Ceylon where he was employed but his wife was asked to remained in England for medical reasons and the husband promised to pay his wife 30pounds until she joined the husband at Ceylon, the couple divorced and the wife brought as action against the husband because the husband failed to pay the wife.
Bilateral contract is exist in business transaction between one or two people. i.e. Sale of good is an example of bilateral contract. In bilateral both parties made the promises and they are both bound to comply with terms of the agreement. The party making the promise is the promisor and other party is the promisee. Example of a bilateral contract is when Mr Joe promised to sell his property to Mr Peter a bilateral contract is binding both parties because they have both provided considerations for accepting the terms.
Speciality contract is a formal contract in law. Speciality contract is used by various business transactions. It can be used in lease of property, and in deed of partnership. In speciality contract both parties that are involved must signed a written document to show that they have entered into a contract. Also the parties that are involved must have a copy of the written document as evidence that they are into contract.
In every contract it very important to keep any contract in form of written form so that the contract will be clear to both parties that are entering into a contract. If there is breach of contract between the parties they can sue for damages. If X and Y are in a written agreement to carry out a business and they have stated in the written simple contract they both party must comply with the agreement and Y could not comply with the written agreement, X can sue John in the law court for damages. A simple contract might be in verbal or written form depends on parties to the contract.
Is a form of contract that is entered into by various big companies in the world. Multination companies enter into an agreement with one another to carry out business. The agreement is seal and documented by the representatives of each company who are expert in their fields. For example in insurance company can enter into an agreement with another re-insurance company. Both parties are legally bound, they can sue for breach of contract in case one company fails to comply with the terms and conditions of the agreement.
Verbal contract is agreed upon by face to face or it can even be through telephone conversation but it is not well documented. I.e. there is no record for verbal contract. In verbal contract the parties involved did not have any evidence to show that there was a contract between the two parties. Verbal contract is a contract where two people make agreement that is not formalized with a written contract. Verbal contract is also express in words between two people that are going into a contract. There is no clear evidence in a verbal contract since the agreement is done by words of mouth, when breach of contract occurs between the parties. People agreed to enter into a contract in verbal contract without signing any paper document as evidence therefore they are difficult to prove and can create dispute since there is no clear evidence.
A written contract is document showing all the terms and conditions that both parties to a contract have enter into in details and it is full signed the both parties. The parties that involve in written contract can be individual, businesses and organisation. All the terms and conditions of a valid contract must be shown on a written contract and must be signed by both parties. A written contract is prepared and submitted by a licence lawyer or attorney who makes sure that the terms and conditions are made clear to both parties before signing the document. A written document can also be written by individual involved and signed by both parties for the purpose of breach of contract or record purpose i.e. a clear record of agreement exist. A written agreement must be hold in the law court, and the purpose of written agreement is to ensure that both parties understand it and comply with its stipulations. Both parties in a written contract must understand and recognise the responsibilities involved. A written contract protect both parties involved from breach of contract I.e. When one party fail to perform his duties when in a contract with another party legal action will be taken against the person. For example if Mr john and his employer are into employment contract and the company fails to pay Mr john his monthly salary after a stipulated time frame, Mr John can filed a lawsuit against his employee for breach of contract to claim his salary. A written contract is used as a evidence of an agreement between two parties and to show that they have both agreed to the contract. A written contract enable those that are self employed to show that they have a standard agreement with their client which enable them to pursue a legal case against their client in case they don’t want to pay them the agreed fees because agreement without a written contract cannot be prove in the law court. A written contract is examine by the attorney when they both parties have agreed to come into a contract with one another. A written contract shows the nature of the business and those that are involved in the contract.
THE KEY ELEMENTS IN FORMATION OF A VALID CONTARCT:
An offer is defined as a statement by one party of willingness to provide a service or sell a product to another party on stated terms. The person making an offer is called the offeror while the person to whom the offer is made is called offeree. There is no requirement on how the offer should be made, it can be in orally, written form or by conduct. An offer cannot be accepted once it is terminated by the act of offeree or offeror. For example, in tenancy agreement between landlords, the owners of a property and the tenant, the landlord rent his property or building to the tenant, the landlord is the offeror and the tenant is the offeree. Since the two parties have come together to enter into a contract there is a legal binding between the landlord and the tenant.
INVITATION TO TREAT
This is an expression of willingness to enter into negotiations with one another with the hope that it will lead into a conclusion of a contract at a later date. This is when two people that want to enter into a valid contract by bargaining and trying to seal a contract with one another. An expression is made by one party which will make the other party negotiate on with the seller. The expression that was used describes the negotiation statement. For example if Mr John wants to sell my car and he put it on auto trade for auction without a named price. Also with the help of technology people can trade with one another online, people can buy and sell cars online without meeting themselves. For instance Mr John put his car for sale on Auto trade auction all Mr John has to do it to put the pictures of the car on it and people that are interested in buying it will bid for it online and the highest bidder buy the car and the car will be delivered to the highest bidder.
Partridge v Crittenden (1968)
The defendant had advertised bramble finches in a magazine at £1.25each. A customer sent the defendant£1.25 and a bramble finch was sent to him. The defendant was charge with offering for sale a wild live bird, contrary to the protection of bird’s act 1964.
This is defined as what turns a specific offer, made with the intension to be bound into an agreement. It may also be describe as unconditional to agreement which may be oral or in writing as was the case in Carlill V Carbolic Smoke Bull co (1982). When acceptance is assume and not accepted by the party and later a new terms is introduced, the terms and condition too will be affected it will not be referred to as an acceptance. When offeree alters the terms and adds another term it will then be referred to as counter offer. An offer to sell land to B for $1000 and B replied offering $950 it was not acceptance but an offer to pay for the land at that price. An acceptance could be referred to as the second half of a contract. If Mr Tee offers Mrs Cole a bag of Rice for 200 pounds and Mrs Cole says I accept, that means a contract has been made between Mr Tee and Mrs Cole. There must be evidence from both parties entering into a contract it does not matter who start the negotiation of the contract.
This is a situation where by the intention to terminate the original offer. The contract can be in verbal or written. Counter offer is not an acceptance by one party, it can be referred to as a rejection to an offer when contact is been made between two parties.
The diagram below show the formation of a contract:
All contracts need something to be given in return for something else from other party in form of exchange. The something is referred to as Consideration. The party to a contract must supply consideration for a contract to be valid. This could be called the bargaining elements of a contract both party in a contract gain from one another. Consideration could be informed of an act or a promise. When the act of transfer of good from one party to the other is carried out it is referred to as executed but when one party has made a promise, it’s referred to as executory. In tenancy agreement between the landlord and the tenant, both the landlord and the tenant enter into a contract and both of them are yet to fulfil their promises when the contract is made, therefore consideration of both parties is executory. Consideration is applied to both parties’ i.e. the offeror and offeree.
We have made it clear that for a contract to be valid there must be an agreement in the form of offer and acceptance, consideration and legal binding. Another important requirement for a valid contract is status of the people and the parties that are involve in the contract. Agreement can be enter into by anybody those that are involve in agreement must have full capacity For instance an adult have full capacity to enter into a contract. The following people cannot enter into a contract.
Persons of unsound mind or drunkards
People of impaired judgement
The law protects people of unsound mind and those that are drunk by the time they are entering into a contract if they can prove that they have disability or they are of unsound mind at that time they enter into the contract, the contract is voidable if he was not aware of the nature of the contract at the time he enter into the contract. Also people that have one form of depression are not capable of entering into a contract.
STANDARD FORM CONTRACTS
It is also known as contract of adhesion. This type of contract is legally binding agreement of two or more people who have come together to do a business. The contract between landlord and tenant is a good example. When a landlord deals with tenant in such a way that the tenant has not accepts all the terms and conditions of the contract and the tenant cannot afford to move into another house since he has enter into a contract with the landlord. For instance the tenant find the contract too harsh and he cannot cope with the terms and conditions of the landlord since the contract is in favour of the landlord alone and the other party to the contract is at disadvantage because the terms and conditions of the landlord is unfavourable to the tenant.
THE RIGHT OF THE THIRD PARTY
Third party is not only related in law, it is also related in insurance, politics and manufacturing. Is a contract that is existing between two parties, in case where by the third party is involved who is just a beneficiary; the third party cannot sue for breach of contract. Right of third party (Act 1999). Third party is not a party to a legal contract is just a witness in a contract. For example if Mr A and Mr B enter into a contract to exchange property, there would be a third party who will be a witness to the agreement made between Mr A and Mr B. The third party will be required in the law court to defend the party if the third party is a witness in a contract. In estate agency third party is the person that witness the agreement signed by the agent and the buyer.
It is important for two parties to enter into a contract and have a valid contract which must be legally binding and it must be written and documented and signed by both parties and if it is verbal or written there should be a witness who will signed the form as a witness when the two parties are entering into a contract because of breach of contract where by one parties fails to perform the obligation to the contract. The witness will be called upon by the court to come and give evidence because he was present when the two entered into a contract. Also in a contract the rules of offer and acceptance must be apply in order to have a suitable, legal and binding contract.
Offer is a statement by one party of a willingness to enter into a contract on stated terms while acceptance is willingness to buy the service or good which the seller is offering. For example someone is offering to buy and the other person is accepting. A very good example of offer and acceptance is tenancy agreement made between landlord and tenant, the landlord is offering to let his house or property out while the tenant is accepting to make use of the building or property. It is important for the two parties to understand the terms and Conditions of a contract before entering into a contract.
Acceptance determines when the contract comes into a being. The tenant has to know the offer before the tenant can accept, which make the contract comes into a being. In the case of Carlill V Carbolic Smoke Bull co (1982). It shows that acceptance was assume and not accepted, the rule of offer and acceptance was established.
The advertisement show a reward of anyone who used smoke ball and contracted influenza Mrs Carlill claimed the reward and the company later said it was a mere advertisement she argued it in the court that it was an offer and Mrs Carlill won the case which established the rule of offer and acceptance. In tenancy agreement it is important that both the landlord and the tenant must understand the terms and conditions of a contract before signing the agreements to enter into a contract. The agreements letter shows all the details and it should be given to both parties to keep after they have signed the agreements letter.
In tenancy agreement is the agreement between the owner of the property (landlord) and the tenant who be renting the property. There will be terms and conditions which will be agreed between the landlord and the tenant. In tenancy contract there are certain conditions that have been laid down by law which must be agreed to by the landlord and the tenant.
VERBAL OR WRITTEN TENANT CONTRACTS
There is nothing wrong to have a verbal contract between the landlord and the tenant therefore a verbal contract must be legal binding. It is very important to have a contract in writing. The contract will contain the rules, requirement and obligations of both the landlord and the tenant. The written contract is required because if there is breach of contract whereby one party fails to oblige his or her duties a written contract will be used as reference point if there is dispute. The terms and conditions should be clearly defined to both the landlord and the tenant and should be specific. If the terms and conditions are broken by any parties then the law court can referred to the written agreement between the parties. The landlord is expected to make some provision in a contract which will not hinder the tenant rights and obligations and both parties have agreed to enter into a contract. The following are some of the common agreement made between the landlords and the tenants:
Agreement to the tenancy contract.
Agreement on repairs on the property.
Agreement on whether or not to allow pets.
Whether to furnish the property
The right of the tenant to sublet out of the property.
The right of the tenant to buy the property.
Agreement on period of notice.
The world is a global village technology has made communication easier and faster for people. The use of technology has serious impact on the formation of agreements which make contracts to be fast and quick. The use of electronic agreement over the internet (online contract), electronic mail, website and fax machine allows people to send document that contain terms and conditions of an agreements of contract to be sent from one part of the world to another which makes it faster and quick. When agreements are duly signed by both parties it can be sent through internet or fax machine to both parties. Technology has made people to enter into a contract without seeing each other face to face for instance during auction of cars by auto trader, the people that are involved into trade with one another online via internet to sell and buy cars i.e. the people they are involved do not know one another and they enter into a contract by bidding for the cars and the highest bidder will be the owner of the car and the car is sold online and they delivery of the car is brought to the door step of the highest bidder.
The impact of technology also makes people to shop online and buy goods, the goods are brought to their door step. For example amazons and eBay are example of where people can shop online and buy goods. Consumers should always protect themselves by reading the terms and conditions of any contract online before they purchase the goods. The people accept the offer to buy the good which is a contract without seeing the good physically and the good is brought to their door step they are charged delivery money with the cost price of the good. This enable people to enter into a contract with physical contact with the seller and also seeing the goods they are buying this are as a result of technology. Technology has brought development to the world which makes communication easier and convenient which enable people to enter into a contract without face to face. In Flowers v Phone names (2001) The Claimant tried to register an alpha-numeric telephone number as a service mark. The Court found, as one of the grounds for refusing the registration that the mark did not have the requisite capacity to distinguish, since it was no more than an encoded telephone number.
Most business are done online the internet has changed the way people buy goods, shop online. Businesses are using this means to conclude business transactions and agreed on the terms and conditions. Offer and acceptance can be done via email between two parties that enter into a contract.
The parties that enter into a contract must intend the agreement to be legally binding. It is not all agreement that lead into a binding contract which can be enforced by the law courts. For example if you had an agreement to meet a friend in the pub. You may honour the agreement but it is not a legal duty to meet a friend at the pub.
The parties to the agreement are not legally binding. In Balfour V Balfour (1919) the agreement between the husband and wife shows that the case was a social and domestic agreement the parties do not intend to be legally bound. While in consideration both parties’ offeror and offeree show consideration when entering into a binding agreement which shows that the contract is legal, the terms and conditions must be satisfactory to both parties. If both parties do not provide consideration they cannot sue in the law court therefore it is very important that consideration must be sufficient. Consideration is an essential element in formation of a contract. Consideration and intension are factor they make up a legally binding contract. They are both use in common law.
Legal position of all parties entering into a valid contract must be made clear before entering into an agreement. Not all people are free to enter into agreement: The landlord and the tenant obligation should be stated in the agreement likewise the terms and conditions of agreements must be stated and understood by both parties before entering into a contract.
TERMS AND CONDITIONS: Landlord has their own standard contract given to tenant. Contract differs in terms of the property types and rental prices.
The names and addresses of tenant and landlord.
The property address that is being let.
The Date of entry to the property.
The termination date.
The rental amount and frequency of payment. i.e. monthly, yearly or quarterly.
The amount of deposit.
Type of tenancy, for example short term or assured tenancy.
Details of notice needed to quit the property.
Who to pay the television licence fee.
The following people cannot enter into a contract.
This is a person that is below the age of 18 years, they are also called under age they cannot enter into agreement. A contract enter into with a minor is voidable i.e. a contract can be cancel by the minor at any time. It is required by law that every person can enter into a contract except the minor. Every contract entered into with a minor is invalid and no one is required by law to enter into a contract with a minor.
People are free to enter into a contract or agreement with one another but those that have unsound mind are not allowed to enter into a contract because they do not fully understand the terms and conditions. Person with unsound mind does not have a legal capacity to enter into a contract because by the time he or she is entering into the contract he or she was not in his right state of mind.E.g. Insane and a drunk. If this category of people enter into a contract the contract will be invalid because the law has stated that only those that have sound mind should enter into a contract which be legally binding.
In referring to other form of agreement can be agreement, in car hire purchase, whereby the customer is allowed to make the deposit and the monthly payments for a set period of time. A person can be the effective owner of the car until payment has been completed. The clause is stated in the agreement contract made between the seller and the buyer. Most time when dealing with leasing financial details of the person buying the car on higher purchase is always needed. Companies also lease cars to their employees which does not required much paper work since the companies is the one leasing out the cars. This is also in a form of contract, the terms and conditions to the contract will be stated to both parties when entering into the contract. Therefore agreement between the companies and the employees is a form of contract which is legally binding the two parties. In order to have a valid contract or any form it is important to know the person you are having the contract with and to know if the person can meet the expectation of the contract, also to know if the person is legally permitted to enter into a contract with before entering into a contract in order not to have breach of contract. For instance the law does not allow anybody to enter into a contract with a minor or person with unsound mind. It law will required any contract with these set of people has invalid.
EXAMPLES OF OTHER FORMS OF CONTRACT:
MOBILE PHONE CONRACT
LEASE OF PROPERTY
REAL ESTATE CONTRACT
In conclusion, it is very important to have a valid contract between any parties that are going into agreement for instance in agreement between landlords and tenant, there should be a clear written contract between the two parties before entering into a contract so that if there is breach of contract they can referred to law court. Also in letting out contract both parties involved should have a clear understanding about the contract, the terms and conditions before signing the contract. If the person signing the contract does not have a clear understanding, he or she can look for someone who will interpret the terms and condition before signing the contract because it is stated that ignorant of law is not an excuse. Therefore proper understanding of terms and conditions of a contract should be made clear to both parties entering into a valid contract. Lastly in estate agents agreement between the landlords and the tenant appropriate terms and conditions should be made clear to all the clients before entering into a contract with them. For instance terms of payment and proper documentation of all the records of all the clients should be kept in order to have a smooth run of the family business. In having a valid a legal contract between the landlord and tenant communication through email and fax should be understood between the landlord and tenant with the help of modern technology which make contract to be faster and easier. Also in entering into a valid contract, the law require one should enter into a contract that is valid and entering into a contract should be with those that have sound mind and also should not enter a contract with a minor.
In recommendation, the world is a global village technology has help people communicate with one another from different part of the world by entering into a valid contract through electronic mails, fax, website etc. This enables people to enter into a valid contract with one another without physical contact with one another. In tenancy agreement between the landlord and the tenant, if both the landlord and tenant are not in physical contact with each other, they can enter into a valid contract through electronic mail or fax. All they have to do is to send each other a copy of the contract to each other via electronic mail or fax. This enables the landlord and tenant to have a valid contract. Therefore with the modern technology people can enter into a valid contract with one another without physical contact.
Also people entered into a valid contract through website for instance in cars auctions, cars are displayed online and people come online through internet to bid for cars of their choice and at the end of the day the highest bidder takes the possession of the cars and the cars is brought to their door step. It enables people to enter into a contract and payment for the cars is done online as well. These enable people to enter into a contact without physical contact which enable people to enter into a valid contract with one another. Technology has made things easier and people can communicate from any part of the world with one another and entered into a contract without physical contact with one another.