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Business Law for Managers

Every single day we enter into contracts. When we order a meal in the fast food or drop a coin while buying a ticket for a bus we enter a contract without even recognizing it. However, not all the agreements, that people enter into are enforced by law. Contractual agreements are the only ones that are enforceable through the court system. In order to be able to verify if some specific situation is contract, we have to learn certain rules, which help to recognize whether it is contract or not. People who are engaged in business or marketing make contracts in order to carry out their businesses. It is important to realize, that each contract is made according to the law it is related to. There are various significant aspects which prove that law of contracts differs from that of the other branches of law. Law of contracts contains number of limiting principles as well as subjects to which the parties may create rights and duties for themselves, and law controls and supports those duties and rights. It would not be mistake, if we say, that parties maintain their own law for themselves. They are allowed to maintain all possible rules in regard to the subject matter of their contract, unless they transgress some legal prohibitions, in this case, law will influence their contract for sure.

 

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Indian Contract Act of 1872 is actually where all laws relating to contracts may be found. According to the Indian Contract Act mentioned above, contract is agreement supported by law. Agreement, on the other hand is every promise that forms consideration for each other. Promise is defined as accepted proposal, in other words proposal becomes promise in case if the person, to whom the proposal is made, accepts it. There are two components of agreement: offer or proposal and acceptance of that offer.

The maintained or traditional approach to contract law shows that all contracts require presence of an offer and an acceptance. Offer and acceptance are means of analysis of the process of interaction and it helps to understand whether and when a contract has been made and what therefore constitutes its terms. The offeror or "the one who offers" invites an acceptance which must conclude the deal. If oferee – the acceptor – gives positive respond, than an offer is made. It is also proved, that order establishment is possible only under condition of agreement, it means that both sides have to come to consensus. In a contract law offer and acceptance analysis has become a traditional approach to verification if an agreement exists between two parties. Basically, formula of offer and acceptance has been developed in 19th century.

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Nature of an offer is explained through the following definition: it is expression of willingness to enter contract under certain terms, and as soon as it is accepted it becomes binding. Talking about offer, we should realize that it is different from invitation to treat, which is indication of a person’s willingness to negotiate specific contract, it is merely an invitation to others to make offers.

Offer may be made whether to a person or to a group of individuals. It is clear that as soon as offer is accepted the contract is formed, but still offer may be liquidated without creation of a legal agreement. Rejection of an offer may occur if a person rejects an offer, revocation of offer occurs when the offeror withdraws hid offer, but once accepted offer cannot be revoked as well as once revoked offer cannot be accepted.

Invitation to treat may be defined as an action inviting other parties to make an offer to form a contract. It is usually difficult to tell the difference between invitation to treat and offer, as these actions may appear to be offers themselves.

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It would be right to summarize, that invitation to treat is basically an action by one party which may appear to be a contractual offer but which is inviting others to make an offer of their own, it may be referred to as a request for expressions of interest.

One has to know where the dividing line is though, because accepting an offer creates a binding contract, while accepting an invitation to treat is actually making an offer. Invitation to treat may be an indication by the owner of property, for example, that he might be interested in selling at a certain price. Another example may be advertisements, auctions, a display of goods at a fixed price in a shop window or on a shelf in a self-service store is an invitation to treat and not an offer, because a shop owner is not obliged to sell goods to anyone who wants to pay for them.

Acceptance is necessary for the formation of the offer, and it is defined as final and unqualified expression of assent to the terms of an offer, in other words acceptance determines when a contract comes into being. In case of a specific offer, it can be accepted only by that person to whom it is made. The contract law is that if 1 wants to make a contract with 2, then 3 cannot substitute himself for 2 without 1 consent. Acceptance may be referred to as valid only in case when it is absolute and unqualified according to the terms of the offer. Communication of acceptance is another rule of acceptance. The acceptance must be communicated, and it is important to keep in mind, that offer can be accepted only by an offeree, and the latter is not responsible for the offer if another individual accepts the offer on his behalf without his agreement and authorization.

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As a consequence of this rule, silence cannot amount to acceptance. The main rule is as mentioned above, that the offer must be communicated to the offeree and the acceptance must be communicated to the oferror, therefore there must be evidence, that the parties had engaged in conduct manifesting their assent. Correspondence with offer should not be omitted as well. If one is going to accept an offer, he must accept an offer exactly, without modifications, because if any changes are made counter-offer terminates original offer. An offer can be terminated on the basis of rejection from the side of the oferee if he does not accept the terms of the offer. In case if oferror dies offer automatically becomes not valid. This does not apply to the option contracts however. The oferror may withdraw the offer at any time before acceptance.

A contract can be made under condition when parties come to consensus and if they actually have an intention to form contract.

Contracts are a legally binding ways of exchanging promises to fulfill certain actions. Now we will dwell on elements of the valid contract. There has to be at least two parties entering into a contract, they may be two individuals or businesses. The next step is agreement between parties. By the way, both parties must be of legal age and realize all the aspects of the agreement. However, contract cannot be considered as valid in case if it violates law in any way. Finally, both parties receive consideration from the agreement, it may be money in exchange for a goods or services, or any other method of consideration depending on the choice of the parties.

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Before talking about the legal termination of contract lets examine the situation with Gary, who is seeking for help, as he needs to break the contract with his cheese-sandwiches- supplier, but does not now how to do it in a legal way.

The issue of breaking contract is very important indeed. Many people are wondering how to break the contract legally when circumstances “out of the blue” change their situations. There is no doubt, that in this case, one should consult a lawyer, as long as this question is from their field. This might be a crucial point, because knowledge of how to break a contract and when it is allowed may help people before they make any wrong decisions.

First of all, a contract can be broken is if one of the parties has committed a breach of contract, this happens when the terms of the contract are not being met. In case, when any property damage or financial loss occurs, lawyer can actually argue that the terms of the contract have been violated.

Lets return to Gary’s and Helen’s contract and see what were the terms. The contract says, that Helen was obliged to deliver 50 assorted cheese sandwiches to Gary’s café every weekday of the year between 9 a.m and 10 a.m. For the first 12 weeks contract runs smoothly, then Helen starts to arrive late. One time she arrives at 11:30, next time it is11:45. This causes great inconvenience for Gary, as his customers are disappointed and some even claim that they will change service. Therefore, due to the breach of terms Gary is probably on the verge of loosing his business, because loss of customers in most cases is guarantee of bankruptcy. It is easy to see, that Helen has broken the rules and court may rule for a simple cancellation of the existing contract or even determine that more compensatory damages are required, because Gary actually had some dissatisfied customers, who probably had left without ordering a meal and would hardly come back. The court may, also suggest the reformation, which is to change the contract’s terms to satisfy the requirements of both parties more accurately.

 

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