Legal Aspects of a Business

Contracts

A contract is a legally binding agreement with specific terms between two or more parties, in which there is a promise to do something in return for a valuable benefit

IMPORTANCE

• to create a clear legal agreement between parties

• it limits the potential failure of deliverance by the other party

SIMPLE CONTRACTS

A simple contract is where there is an offer and acceptance of terms. It is legally binding but the contract doesn’t have a deed

Ex.

1. Rental Agreement

2. Employment Contract

3. Purchase of Goods

ELEMENTS

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

• The Offer - a promise which, according to the terms set out, becomes legally enforceable if accepted

• The Acceptance - an act that indicates assent to the terms of the offer

CHARACTERISTICS

• Offer & Acceptance - One party makes an offer (offeror), that is then agreed to by the other party (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.

• Intention to Create Legal Relations - this is when the parties intend to enter a legally binding agreement or contract

SPECIALITY CONTRACT

A specialty contract is a legally binding (under seal ) agreement that is unique and specific to a particular situation or industry.

CHARACTERISTICS

• Signed

• Sealed

• Delivered

ELEMENTS

• The contract must be signed by both parties and sealed

• A deed must be delivered by the offeror

KEYWORDS

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

DISCHARGE AND TERMINATION

Discharge of a Contract

• This occurs when the obligations of the parties to the contract have been met

Methods of Discharge

• Performance

  This is the most common type of discharge and it occurs when both parties fulfill their obligations in a contract

  Complete Performance - every term and warranty has been completed

  Substantial Performance - the terms of a contract have been substantially fulfilled, only minor details haven’t been completed

  Partial Performance - only one element of the contract has been fulfilled

• Breach

  This occurs when a party named in the contract fails to complete its part of the contract

  Anticipatory Breach - when one party declares that they will not be completing all of their obligations ( before the performance due)

  Actual Breach - when one party does not fulfill all of its obligations at the end of the contract or terms are partially met ( on the date its due)

• Agreement

  The parties in a contract may agree a point at which the contract will be terminated

• Impossibility

  If it is impossible to perform a contract from the outset, then it is void

• Lapse of Time

  A contract will be deemed to be discharged if its not enforced within a specified time period

• Death

  Contracts will be discharged if a party dies

INSURANCE

Insurance is the process of transferring a risk from one party to another for the price of a premium

Pooling of Risks

• The concept of Pooling of risks states that instead of one person bearing the loss of an unfortunate event a big group of people do

Subrogation

• The principle of subrogation means that the compensation paid by the insurance company takes the place of the good that is being insured

Proximate Cause

• The principle of proximate cause is the original event that caused the loss that is being claimed. The insurance company will only cover the events that fall under its policy terms and conditions

Contribution

• Contribution is the basic principle when a person is insured under multiple insurance companies for the same claim. Both insurance companies will contribute to the payment of the loss

Utmost Good Faith

• The utmost good faith principle relates to insurance contracts where both parties have to disclose all necessary information

Insurable Interest

• The insurable interest principle sets out that an individual can only take out insurance when they have personal ownership of what is being claimed for and if the loss or injury actually occurred

Indemnity

• The principle of indemnity involves putting someone back into the position that they were in before the loss incurred