Essential Elements of a Valid Contract

1a Explain the different types of business contracts and discuss the essential elements of a valid business contract. (LO1)

Business contracts are an essential part of conducting business and it’s important if your business operates online.  The business contract keeps the work legitimate and protects both parties.  It’s essential that both parties agree to the terms outlined in the contract and acknowledge their agreement with a genuine signature.  For every deal that requires, you to conduct a different task for your client, you need a business contract.  Some clients may not prefer, but this is a procedure that ensures both parties keep to their end of the deal. A business contract also provides a sense of security to both parties to knowing they are on “common ground” in regards to the business relationship.  A well thought out contract helps alleviate potential problems by addressing them before they actually take form.

FOUR COMMON TYPES

Business contracts are created to suit the situation and on an “as needed basis”, for instance:

Work-for-Hire: Companies create a Work-for-Hire contract when they are hiring an outside contractor to perform certain responsibilities.  The contractor works alone and is responsible for claiming the money he or she makes to the IRS.

Confidentiality or Non-Disclosure: This contract protects the company’s personal and confidential material.  If the company is sharing valuable client information or trade secrets, it is important that there should be contract regarding this.  By agreeing to this type of a contract, the independent contractor is agreeing to not reveal business information or use trade secrets for personal benefit.

Non-Compete: This type of a contract stops the independent contractor from competing with your business or stealing your ideas.  Anyone that he or she comes in contact with must be addressed as your client, not theirs.

Service Agreement:  A service agreement is widespread among online business services.  The contract ensures that both parties be given what they expect.  The client receives the work he or she has hired you for, and you receive payment for your work.  This agreement should always be signed.  If your client can’t sign it, then fax it to them in order to have no complication.

CONTRACT ELEMENTS:

To distinguish contracts from other types of promises and agreements, courts have established basic elements that are necessary for a contract to exist. A contract may be legally defined as a voluntary, legal, written agreement made by persons with the proper capacity. It should include: (1) an offer; (2) an acceptance; and (3) consideration, or an exchange of value. There are legal exceptions to most of these conditions, and all of them are subject to interpretation in the courts. Furthermore, some contracts do not meet these requirements, such as implied contracts.

MUST BE VOLUNTARY

Contracts not entered into voluntarily are void able For example, a company might tell a supplier that it was considering ending their business relationship if, within the next ten minutes, the supplier didn’t sign a contract to provide materials at a certain cost. If the supplier signed the agreement, it might be able to convince the courts that it did so under undue influence, and therefore was not bound by the contract’s terms. In general, contracts created under duress, undue influences, fraud, and misrepresentation are void able by the injured party.

MUST BE LEGAL

Contracts are also void if they involve a promise that is illegal or violates public policy. For instance, a contract regarding the sale of illegal drugs is unenforceable. Similarly, contracts that are legal but are not in the public interest may be worthless. For instance, a contract in which a company requires a customer to pay a very high rate of interest on lent funds could be considered invalid by the courts. Or, suppose a company contracts with a customer to sell supplies to him that he uses to grow marijuana. If the company also tells him how to grow the illegal substance, the contract would become unenforceable because the agreement promoted the violation of a statute.

ORAL CONTRACTS

Contracts do not have to be written to be enforceable in court. In fact, most oral contracts are legally enforceable. However, they are obviously much more difficult to prove. Furthermore, most states have adopted “statutes of frauds,” which specify certain types of contracts that must be in writing. Examples of contracts that typically fall under the statues of frauds include agreements related to the sale of real estate, contracts for the sale of goods above $500, and contracts in which one person agrees to perform the duty of another person. Yet even those contracts do not have to exist in usual manner. In fact, a simple memo or receipt may be sufficient. There are several exceptions to the statutes of frauds. For instance, when one party would suffer serious losses as a result of reliance on an oral agreement, the statute of frauds may be waived.

MENTAL STATE AND PROPER AUTHORITY

Even if a contract is voluntary, legal, and written, it is void if the person that makes the agreement does not have the mental and legal capacity to do so; hence, a mentally retarded individual or a child could not be bound by an agreement. But a person without the authority to make an agreement may also void a contract. For instance, suppose that a very keen salesman representing a ball bearing company signed an agreement with a buyer to supply one billion ball bearings to be delivered in 24 hours. The contract could be worthless if the salesman was acting outside of his authority to commit the company to that agreement.

OFFER

In addition to being voluntary, legal, written, and made by persons with proper capacity, contracts usually must possess three basic mechanisms: an offer, an acceptance, and consideration. An offer is a promise to perform an act conditioned on a return promise of performance by another party. It is recognized by a specific proposal communicated to another party. Once a legal offer has been made, the offeror is bound to its terms if the other party accepts. Therefore, the offeror must clearly indicate whether the proposal is a bid or some other statement, such as an invitation to negotiate. The offeror may specify certain terms of receiving, such as time limits, and even withdraw the offer before the other party accepts.

ACCEPTANCE

Acceptance, the second basic requirement, is legally defined as “a manifestation of assent to the terms made by the offeror in the manner invited or required by the offer.” As with offers and offerors, the courts look for intent to contract on the part of the acceptor. The difference is that the offeror may stipulate terms of acceptance with which the other party must comply. If the offeree attempts to change the terms of the offer in any way, a rejection is implied and the response is considered a counteroffer, which the original offeror may reject or counter. As with most rules regarding contracts, exceptions exist.

CONSIDERATION

Even if an offer is accepted, it must be consummated by consideration for a legally enforceable contract to exist. The requirement of consideration serves an important purpose. It protects the promissory from being liable for granting, or relying on, gratuitous promises. For example, suppose that a person told her roommate that she would always pay the entire rent for their apartment. If she later changed her mind, she could not be held liable for the rent because she had neither asked for, nor received, anything in exchange for the promise. Had the other roommate promised to clean the apartment in exchange for the roommate’s promise to pay the rental fee, an enforceable contract would exist.

1b) Le Nostre has advertised its holiday booking offers on the internet asking for reply by the following modes: post, fax and clicking on an icon.

Explain the legal position on formation of a contract when acceptance is: by post, by instantaneous mode; and where a purchaser of a service is required to communicate his acceptance of an offer by clicking on an icon? (LO1)

Faxing in Windows Vista is a much more official feature than it was in Windows XP. Sending a fax is even easier on a PC than on a real fax machine; you just use the regular File Print command, exactly as though you’re making a printout of the onscreen document. When faxes come in, you can opt to have them printed automatically, or you can simply read them on the screen.

The very first time you try faxing, you encounter the Fax Setup Wizard. It first asks you to type a name for your fax modem.

Next, it wants you to specify what should happen when someone sends a fax to you (that is, when the phone line that your PC is connected to “rings”). Click automatically if you want Windows to answer incoming calls after five rings, assuming that if you haven’t picked up by that time, the incoming call is probably a fax.

If you choose “Notify me,” each incoming call triggers an onscreen message, asking you whether you want the PC to answer as a fax machine. And if you choose “I’ll choose later,” you can postpone the decision and get on with sending your first fax.

Finally, you arrive in a new Vista program called Windows Fax and Scan. It looks a heck of a lot like an email program, complete with an Inbox, a Sent Items folder, and so on. In fact, a New Fax window (like a New Message window) awaits you

1c) Discuss the rule on “intention to create legal relations” in business/ commercial agreements and social/domestic agreements, and the importance of consideration in a valid contract. (LO1)

Firstly, in ordinary commercial contracts, there is a strong presumption that intention is present. It is possible to displace this presumption, but it is very difficult to do so.

Secondly, in domestic and family arrangements there is a weak presumption that there is no intention to create legal relations. This presumption can be easily displaced.

Thirdly, certain types of government arrangements, of which the wool subsidy scheme in the Australian Woollen Mills case is an example, do not generate contractual relations. But, of course, ordinary government contracts are just contracts in the usual sense.

Finally, there is a bit of a problem in analysing what goes on when a club or other voluntary association makes a contract. A voluntary association which has not included is not a legal entity. It is a set of individuals. There are problems of contractual study when this collection of individuals deals with the outside world and when they make rules for the conduct of their own, joint enterprise.

The importance of contract law can be classified, as is habitual in civil law systems, as part of a general law of obligations (along with tort, unjust enrichment or restitution).

According to legal scholar Sir John William Salmond, a contract is “an agreement creating and defining the obligations between two or more parties”.

1d) The hotel chef was recruited by the hotel receptionist, however only the manager has authority to recruit staff.  Explain the legal position on capacity to enter into a contract and advise the hotel on its obligation, if any, to the chef. (LO1)

Contractual Capacity is the legal ability to enter into a contract. Minors have particular rights and obligations established by the court when it comes to contracts. Once a person reaches age 18, they are considered a legal adult in every state in the nation. In addition to minors, other persons are able to avoid contracts. Mentally impaired and intoxicated people, convicts, and aliens lack the capacity to enter into a contract. The hotel chef is appointed by the hotel receptionist whereas only the manager should have appointed him. The receptionist has been given the power by the manager to appoint the chef on behalf of him.

A hotel manager is responsible for the day-to-day management of a hotel and its staff and has commercial accountability for planning, organising and directing all hotel services, including front-of-house (reception, concierge, and reservations), food and beverage operations and housekeeping. In larger hotels, managers often have a specific remit (guest services, accounting, and marketing) and make up a general management team.

Chef Duties & Responsibilities include

• Creating an innovative menu with local, organic and seasonal offerings • Supervise the kitchen staff • Establishes and delegates work duties in each kitchen area. • Preparing and cooking meals to order according to established policies and procedures. • Responsible for maintaining high food quality. • Controls waste and food cost. • Ordering, receiving, storing, inventory and issuing all food products. • Demonstrating cooking techniques and proper equipment usage to the kitchen staff • Accountable for training of kitchen personnel and maintaining morale of the kitchen staff. • Responsible for health and safety regulation enforcement and maintaining a clean and safe kitchen.