POB SECTION 4

Contract

Contract

An agreement made by two or more parties that is legally binding or enforceable by law.

Simple Contracts

Contracts with offer and acceptance of terms, legally binding without a deed, e.g., Rental Agreement.

4 Characteristics of a simple contract

• Offer & Acceptance - One party makes an offer, the offeror, that is then agreed to by the other party, the offeree. this creates a binding contract.

• Consideration - A promise or action made by one party for the promise or action made by another.

• Competence of Parties - Parties should be adults of sound mind.

• Legality - (being in accordance with the law) For contracts, the intent is to enter a legally binding agreement.

Specialty Contract

A unique, legally binding agreement under seal, involving large sums of money or specific obligations.

4 Characteristics of a Speciality contract

• This contract is under seal.

• Involve large sums of money or considerable obligations and terms.

• In writing or printed and will be sealed

• The contract is conclusive between two parties when it has been signed, sealed and delivered.

Conditions for Offer and Acceptance of SPECIALITY CONTRACTS

• Offer made by offeror

• Agreement Reached

  • both parties come to a mutual understanding and acceptance of the terms proposed in the offer

• Offeree Accepts the offer

  • The offeree demonstrates willingness to adhere to the terms outlined in the offer.

Acceptance Criteria for Speciality Contracts

• Offer Specificity

  • only the person who the offer was made to can accept

• Communication of Acceptance

  • Acceptance needs to be communicated to the offeror either directly or through implied actions.

• Mode of acceptance

  • acceptance must follow the mode of communication set out in the offer

  • An acceptance made through the post office is effective once the letter is posted.

• Acceptance must be absolute and unqualified

  • the offeree cannot add extra terms and conditions; a new offer would be required; this is referred to as a counteroffer.

INVITATION TO TREAT

A pre-contractual communication that expresses a willingness to negotiate an agreement but does not amount to a legally binding offer. Examples include newspaper advertisement

Difference between an offer and an invitation to treat.

Offer: legally binding commitment, express willingness to go in a contract on specific terms

Inv. to treat: no legal commitment, express willingness to negotiate an offer

Offer and Acceptance

• Offer is a proposal made by one party to another, establishing their willingness to enter into a legally binding agreement.

• Acceptance is the act of agreeing to take up an offer (Acceptance is the agreement made to accept the terms and conditions in the contract.)

Under Seal and Conditions of a contract

• Under Seal means that a contract that is executed with formalities such as a seal, signature or witnesses.

• Conditions of a Contract conditions that are general to all forms of contracts.

Discharge of Contract

Fulfillment of contractual obligations, ending the contractual relationship, e.g., by performance or novation.

3 types of discharge from contracts

• By Performance- when both parties fulfill their obligations as per the terms of the contract.

• Novation- refers to a situation where a new contract replaces the previous one.

• Recission- When the parties agree to cancel the contract all together, so that the terms are no longer valid.

Termination of a Contract

conclusion or ending of a contract before the parties have “fully performed their obligations.”

3 METHODS OF DISCHARGE

• Agreement- parties in acontract can agree on a specific end date for the contract

  • A contract can also be terminated by the creation of a new agreement, which must include consideration

• Death- if a party dies the contract will be void

• Lapse of time- A contract will be deemed to be discharged if it is not enforced within a specified time period called the “period of limitation”.

• Impossibility - If it is impossible to perform a contract from the outset, then it is void.

  • Usually occurs where there is no fault by either parties

• Performance- when all terms and warranties of a contract are fulfilled by both p,arties.

  • Complete- when all terms and warranties of the contract are fulfilled by parties

  • Substantial- when most terms are fulfilled, but minor details remain incomplete. (conditions must be fulfilled, warranties might not need to be fully met)

  • Partial- One party accepts partial fulfillment of the other party’s obligations

• Breach of contract- when one party fails to fulfill their obligations in a contract. It can lead to remidies such as compensation or recission.

  • anticipatory - when a party delclared they won’t fulfill obligations before theyre due

  • Actual- when one party doesn’t or only partially fulfill their obligations before the contract’s due date

IMPORTANCE OF DOCUMENTING BUSINESS TRANSACTIONS

• To keep accurate accounts of the financial dealings of a business

• To keep records of accounts with individual customers and suppliers

• To record all transactions systematically so that they can be checked

• To have accurate business records

Audit & The 2 types

An official inspection of an individual or firm’s accounts

Internal Audit- an audit that t akes place within a company by an employee.

External Audit- an audit carried out by an independent, qualified accountant. The purpose of this is to determine whether the accounting records are accurate and complete.

Inquiry

A request by a potential buyer for information about goods/services, such as their prices.

Price list

a list of goods and their prices

Advice note

a document advising the buyer when the goods will be supplied, in what quaantites and at what prices

Delivery note

a list of items supplied, sent with goods as a part of the delivery process

Credit note

a document sent by the seller to the buyer reducing the amount that needs to be paid on an invoice.

Debit note

a document sent by the seller to the buyer identifiying additional money that is owed.

PRO FORMA INVOICES

It shows what the final invoice will look like when it is sent out by the seller

3 important details on an invoice

• Date when the invoice is created

• date when payment is expected

• Names and addresses of both supplier and customer

• Contact names of the relevant parties in the sales office(seller) and purchasing office (purchaser) who are dealing with the invoice

• Description of items purchased and any sales tax or discounts on the items

• Terms of payment includes whether a discount is allowed for payment within a certain time period.

• Total amount owed

• Invoice and purchase order number

PURCHASE REQUISITION FORM

Used by departments within a business to make an order for supplies such as stationey.

3 Details on a purchase requisition form

• Shows what department made a purchase request, therefore what department to charge

• Details of the person who authorized this order

• Purchase order number

• description and number of goods or services being requested

• total value ($)

STATEMENTS OF ACCOUNTS & what it shows

This highlights a series of transactions (and payments) that have taken place over a specific period.

This statement shows

• The account holder’s balance at the start of the period

• transactions made during the period

• balance at the end of the period

STOCK CARDS & info required

Used by a business to keep a check on how much stock it has in stores

• the date

• a reference, eg balance, purchae or sales

• movements in (purchases)

• movements out (sales)

• balance of stock

Insurance

Insurance is the process of transferring risk from one party (the insured) to another (the insurer) for a price called the premium.

It provides partial or full compensation for the loss or damage caused by certain events if they occur.

TYPES OF INSURANCE

Life Insurance & Non-Life Insurance

3 Principles of Life Insurance

• A term Policy

  • It pays out if death occurs during the term of the policy

  • A level-term policy entitles the policyholder to a sum of money which stays the same throughout the life of the policy

  • A reducing-term policy means that the sum of money will reduce the longer the policy is held

• A whole life/permanent policy

  • It pays out whenever a person dies regardless of how long they live

  • Typically a sum of money and the premiums will stay the same.

• An endowment policy

  • This pays out a lump sum after a specific term, or on the death of the policyholder.

  • Some also pay out if the person is critically ill.

NON-LIFE INSURANCE POLICIES

There are many types of non-life insurance policies that are relevant to business, which involve an insurance contract between an insurance company and the insured.

3 Key types of insurance are

• Buildings, fire and equipment

• Product Liability Insurance

• Fidelity

  • This will cover a company against harm resulting from dishonesty or fraud committed by any of the company’s employees.

• Vehicles

  • This insures company vehicles and their drivers against damage caused by accidents while on company business.

• Marine/Aviation

  • Insures cargo, freight,airplanes etc

• Employer’s Liability

  • covers accidents to employees on company premises or while going about company business.

• Public Liability

  • insurance against accidents or injury caused to the public where the company has done everything in its powers to prevent this from happening

• Cyber and digital Risks

  • A business can get insurance against risks of cyberattacks on their data and in the case it happens it will be covered if they had preventative measures such as fire walls in place

• Assurance

  • a type of insurance used in the context of life and term insurance policies. In assurance, the policyholder is assured compensation of a predetermined amount in case of eventualities like death or disability

2 ways in which insurance is helpful

Insurance reduces the risks associated with doing business and trading.

Insurance facilitates trade by covering the risks of firms.!!

How can insurance ensure continuity for a company?

it helps in restoring a business to its former position before the unforeseen event.

Trade credit insurance

• The exporter pays a premium to the insurer.

• The exporter then sells goods on credit to a foreign buyer.

3 Benefits of trade credit insurance

• a country sells more exports, earning more international currency

• exporters face less exposure to risk

• exporters will make a return on their exports

• the earnings of exporters are more predictable

3 Principles of insurance

• pooling of risks-

  • The sharing of common financial risks evenly among a large number of people. So the insurance company takes the risk away from individuals at a cost and all the money is pooled together. When needed compensation is paid from the pooled fund.

• subrogation

  • the insurer takes the place of the insured.

• proximate cause

  • the original event that caused the injury or loss that is being claimed for.

• indemnity

  • The principle that insurance is meant to compensate, not profit.

• utmost good faith

  • the insured must provide all relevant and accurate information.

• contribution

  • When multiple insurance policies cover the same risk, they share the cost of the claim.

  • It prevents someone from being compensated for the same event multiple times

• insurable interest

  • The policyholder must have a legitimate interest in the subject matter of the insurance.