CAT Paper 1 Recording Financial Transactions - The Law Of Contract

WHAT IS A CONTRACT?

A contract is a legally enforceable agreement between two or more parties for performing or refraining from performing an act of exchange.

WHO NEED TO KNOW THE LAW?

Buyers, sellers, owners, customers, accountants and employees etc., all need to know some aspects of the law of contract.    Customers need to know their rights and employees need to know their role in the exchange process.

The law of contract is a very complex. The following area of contract law will be discussed in this article:

       I.            does an enforceable agreement exist

    II.            terms and condition of an enforceable agreement

 III.            breaching an enforceable agreement.

I.  DOES AN ENFORCEABLE AGREEMENT EXIST?

Let’s go back to partnership accounting; a partnership business can be formed without having a written contract. A verbal agreement between potential partners forms a legally enforceable contract.  This is true for so many other types of verbal agreements.  Before a contract can be labeled as legally binding, there are some factors that should be considered.

(a)    Intentions – there has to be an intention from all parties involved that the business transaction agreement should be enforceable.

(b)   Offer and Acceptance – an offer by one party must be accepted by the other party without any condition. 

(c)    Capacity – a party must have the legal power to enter into an enforceable agreement.  Minors or parties under the age of 18 cannot participate in contract agreements.

(d)   Consideration – goods or services are given exchange for money or another good or service.

An invitation to treat is invitation to a party to make an offer on (a) the display of goods (b) the advertisement of a price or an auction and (c) an invitation for tenders.

Advertisement and shop window displays does not signify an offer.  These are known as invitation to treat.

II. TERMS AND CONDITION OF AN ENFORCEABLE AGREEMENT

 Conditions are terms which go to the very root of a contract. Breach of these terms or the refusal, of one party to acknowledge a contract, allows the other party to discharge the contract. A warranty is not necessary so the contract will keep going after a warranty breach. Breach of either will give rise to damages.

 

III. BREACHING AN ENFORCEABLE AGREEMENT

A contract is in violation (breach) when one party does not fulfill his/her side of the agreement.  How these remedies are dealt with depends on the jurisdiction of the court. Some common remedies are:

Repudiation	- The refusal, of one party to acknowledge a contract or debt.
Action for price	- The court order the buyer to pay money owed for goods or services       provided.
Damages	- The court awards the damaged party the benefit of the bargain or     expectation damages.
Specific performance	- The court order to fulfill his/her side of the agreement.