Unit 21- Aspects of contract and business law
Assignment 1 - Understand the legal requirements for a valid contract
Task one (p1)
Identify the legal criteria for offer and acceptance in a valid contract
A contract is defined as a legally binding agreement and are very important in business. This is because: * it is risky to enter into a business arrangement without some form of contract * this is because, in the event of something not going as planned, a business contract is your safety net * without a business contract that stipulates the procedures, policies and expectations of the concerned parties, it is also likely that a dispute will arise in the course of the transactions * a broken contract can result in a law suit or an out of court settlement and the payment of damages caused by the breech of contract
There are many different types of contracts.
The main elements needed for a standard contract are:
Offer And Acceptance
An offer is a definite promise made by an offeror to an offeree about the agreement made. They make this promise with the intention that it shall become binding or legally enforceable as soon as it accepted by the person receiving the offer (the offeree).
A valid offer must be accepted by the offeree to the contract. In normal circumstances, acceptance of the offer must be communicated to the person making the offer, (the offeror). Acceptance of an offer must be in the form specified in the offer. This can be both written or oral. An example of an offer and acceptance would be:
A vending machine. The machine is offering you the items and you are choosing whether to accept the offer by putting your money into the machine to purchase the item.
A person going into a shop to purchase an item, they would pick up the item and take it to the till to pay. When the customer, the offeror, hands the shop keeper the money they are making an offer, as soon as the shop keeper, the offeree, accepts the money they are showing acceptance. Sometimes the situation can just be as simple as this and no words have to be spoken.
Invitation to treat
There is a big difference between an offer and acceptance and an invitation to treat. An invitation to treat is an indication that a person is prepared to receive offers from another person. In this sense, 'treat' means to 'trade' or 'to do business'. The person who is available to receive an invitation to treat can accept or reject the offer until the final moment of acceptance.
An example of invitation to treat would be:
- Goods displayed, with a price ticket attached, in a shop window or supermarket; the customer can make an offer to buy the product, this can then be accepted or rejected by the seller up to the point of sale. - Products advertised in catalog, brochures, Internet etc, even if the word offer is used by sellers to promote their goods.
An offer must be distinguished from an invitation to treat.
Carlill vs carbolic smoke ball company (1892)
The carbolic smoke company placed an advertisement in newspaper to tell people of their new flu remedy. The advertisement stated that it would pay £100 to anyone who took the remedy for 14 days but still got the flu. Mrs carlill used the remedy but unfortunately still got the flu, and made a claim against the company for the money. But the smoke ball company refused to pay the money. The company tried to claim that the advertisement was an attempt to make an offer to the whole world which meant communication of it was impossible. Normally an advertisement in the newspaper or on television etc, would be an invitation to treat, but in this case as the company had actually gone out of their way to put money into the bank they lost the argument, and it made it an offer and acceptance. The company had made an offer to the whole world and mrs carlill choose to accept their offer...
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