4) Customer accounts – legal and ethical aspects

Question 1

What is a contract? Why does it have legal consequences?

Answer 1

A contract is a legally binding agreement enforceable in a court of law.

Is an agreement with legal consequences because if the work done is not satisfactory, or if the payment is not made, the wronged party can take the other person to court for breach of contract.

Question 2

What are the three elements of a contract?

Answer 2

1) Agreement – an offer and an acceptance
2) Bargain – some value (consideration) passes
3) Intention to create legal relations – the agreement is commercial

Question 3

The agreement: who may make an offer?

Answer 3

An offer may be made by:

1) The seller of goods and services to an individual, a group, or generally to anyone who wishes to make a purchase
2) The buyer of goods and services who wishes to place a definite order for goods or services using a signed purchase order or an online authorization for an online purchase

Question 4

The agreement: what happens at the moment of the acceptance of an offer?

Answer 4

The acceptance of an offer – from the seller of the buyer – will form the basis of a legally binding contract which can be upheld in a court of law. At the time the contract is formed various terms and conditions relating to price, quantity and discount can be agreed and form an integral part of the agreement.

Question 5

The agreement – offer and acceptance:

What is an Invitation to treat? Give one example.

Answer 5

Is an invitation to a person to make an offer. Goods on supermarket shelves are an invitation for a customer to take the goods to the checkout where the customer will offer to purchase the goods at the price indicated at the checkout, which is where the contract takes place.

Question 6

The agreement:

When can be accepted the offer?

In which circumstances the offer is terminated?

Answer 6

An offer may only be accepted while it is still open for acceptance.

An offer may be terminated in the following circumstances:

1) The time limit expires
2) The offeror revokes the offer
3) The offer is rejected by the making of a counter-offer
4) By acceptance or rejection of the offer

Question 7

The agreement:

What are the characteristics of the acceptance of an offer?

Answer 7

1) Acceptance of an offer must be firm and unambiguous;
2) it may be in spoken words, written form or even implied by action.
3) It must also be unconditional.

Question 8

What is the bargain or consideration?

Explain the process for a business that buys goods?

What is the consideration in this case?

Answer 8

A valid contract involves a bargain, a passing of value, known in law as consideration.

If a business buys goods there is a two-way process involved:

1) The supplier promises to deliver the goods (promisor)
2) The buyer agrees to pay for them (promisee)

The consideration here is the “value” given by both parties:

1) The payment – the price paid by the buyer for the goods provided
2) The value of the goods handed over by the seller

Question 9

The agreement: what does the term “subject to contract” means?

Answer 9

The term “subject to contract” means that the terms of the offer to the offeree seem satisfactory, but have not been finally accepted.

Question 10

The agreement: what are the rules relating to communication of acceptance?

Answer 10

The rules relating to communication of acceptance are largely dictated by what is required by the offer:

1) The acceptance must be communicated to the person making the offer
2) If the offer requires acceptance by a specific means (letter/fax/verbal/message/email) then that means must be used for the acceptance to be effective

Question 11

Legal rules which relate to consideration

Answer 11

1) It must have value (not necessarily money or goods)
2) It must be sufficient, in return for the promise
3) The person who is promised goods or a service must themselves provide payment if the promise is to be enforceable as a contract.
4) The consideration should not happen before the promise

Question 12

What means the intention to create legal relations?

What is assumed by the law?

Answer 12

A contract is an agreement involving consideration which the parties intend to be legally binding. The parties entering a contract can reasonably expect the agreement to be enforced in a court of law if the need arises.

The law assumes:

1) Commercial agreements are intended to be legally binding
2) Social and domestic arrangements are not intended to be legally binding

Question 13

Termination of contract:

In which situations the contract will come to an end?

Answer 13

There are a number of situations where a contract will come to an end and no longer be legally binding.

These include:

1) Completion
2) Impossibility of performance
3) By prior agreement
4) Rescission
5) Breach of contract

Question 14

What is the classification of contract terms?

Answer 14

1) Express terms
2) Implied terms
3) Conditions
4) Warranties

Question 15

What are the remedies for breach of contract?

Answer 15

1) Action for the price
2) Specific performance
3) Quantum meruit

Question 16

Terminology relating to contracts: Capacity

Answer 16

A person must have the legal capacity to enter into a contract

Question 17

Terminology relating to contracts: Consent

Answer 17

A contract and any amendment to a contract requires the consent of all parties to the contract

Question 18

Terminology relating to contracts: Void contracts

Answer 18

A contract which is basically against the principles of the law

Question 19

Terminology relating to contracts: Voidable contracts

Answer 19

Contracts which may be set aside because one of the parties:

1) entered into it when pressurised to do so, or
2) when he or she was drunk or insane or
3) the contract contains elements which have been misrepresented or are untrue

Question 20

Terminology relating to contracts: Unenforceable contracts

Answer 20

A contract that is valid but the court will not enforce it – either because certain elements of the contract are missing, or even because the contract is for an immoral arrangement

Question 21

Terminology relating to contracts: Frustrated contracts

Answer 21

This type of contract will occur if an unforeseen event renders contractual obligations impossible

Question 22

What are the principal statutes which govern the way in which goods and services are sold?

Answer 22

There are a number of statutes (Acts of Parliament) which govern the way in which goods and services are sold, and this affect the way in which businesses operate. They are part of English statute law and are binding on all relevant business dealings.

The principal statutes are:

1) The Trade Descriptions Act,
2) The Consumer Rights Act,
3) The Consumer Credit Act and
4) The Unfair Contract Terms Act

Question 23

What states The Trade Descriptions Act?

Answer 23

Prevents manufacturers, retailers or service industry providers from misleading customers and makes it a criminal offence:

a) To make false statements about goods offered for sale
b) To make misleading statements about services

Question 24

What states The Consumer Rights Act 2015?

Answer 24

States that you are entitled to expect any goods that you receive from a seller to be:

a) Of satisfactory quality
b) Fit for the purpose
c) As described

If any of these three conditions are not met, the purchaser is entitled (within 30 days of purchase) to a full or a part refund, depending on how soon the fault appears, how serious it is and how quickly the matter is taken up.

Question 25

What states The Consumer Credit Act (updated in 2006)?

Answer 25

Regulates the majority of credit agreements, personal loans and overdrafts.

Its main aim is to prevent the consumer being “ripped off” and pressurised into signing an unsuitable credit agreement.

The seller of goods and services between £100 and £30,000 and the credit provider have “equal liability” for breach of contract or misrepresentation.

Question 26

What states the Unfair Contract Terms Act?

Answer 26

Any organisation that tries to insist on unfair terms may be in breach of this Act. It must be stressed that the terms must be “unfair” in order to break the law.

Question 27

What states the Late Payment of Commercial Debts (interest) Act?

Answer 27

Gives a supplier a statutory right to claim interest from a customer when payment is withheld.

The formula for calculating interest is:

Amount including VAT x (base rate + 8%) x Number of days debt overdue/365

Question 28

What states the Data Protection Act, 1998?

What applies this Act to?

Answer 28

Disclosing data which relates to a third party. The information may be incorrect or the person or organisation to which it relates does not want it to be released.

This Act applies to:

a) Data about individuals but not about companies
b) Records held on computer: a computer database of names, addresses, telephone numbers, sales details of each customer (“data subject”)
c) Manual records

Question 29

What requires the Data Protection Act, 1998 to organisations which process personal data?

What is required by the principles of this Act?

What is stated by the eight guiding principles?

Answer 29

All organisations which process personal data should

1) register with the Data Protection Commission and
2) should follow the eight guiding principles set out in the Data Protection Act.

These principles require that personal data is handled properly.

They state that personal data must be:

1) Fairly and lawfully processed
2) Processed for limited purposes
3) Adequate, relevant and not excessive
4) Accurate and kept up-to-date
5) Not kept for longer than is necessary
6) Processed in line with the data subject’s rights
7) Kept securely
8) Not transferred to countries outside the European Union unless it is adequately protected in those countries

Question 30

What are the fundamental principles of Ethics in business?

Answer 30

All people working in credit control must ensure that they comply with all the fundamental principles:

1) Integrity
2) Objectivity
3) Professional competence and due care
4) Confidentiality
5) Professional behaviour

Question 31

What is the meaning of ethics in business?

Answer 31

Ethics in business are the moral principles or standards that govern the conduct of members of an organisation.

Question 32

Ethics in business: fundamental principles: Integrity

Answer 32

Individuals must be honest, truthful and straightforward in performing the work they are assigned to carry out.

Question 33

Ethics in business: fundamental principles: Objectivity

Answer 33

The principle of objectivity requires that staff should not compromise their professional or business judgement because of bias, conflict of interest or the influence of other people.

Question 34

Ethics in business: fundamental principles: Professional competence and due care

Answer 34

Tasks should be carried out competently and following set procedures.

Individuals must ensure they are up to date with relevant changes in credit control practice and the law. CPD (continuing professional development) records must be updated regularly.

Individuals should only carry out tasks in which they have the necessary professional and technical skills. Advice should be sought if it is outside their area of knowledge.

Question 35

Ethics in business: fundamental principles: Confidentiality

Answer 35

Customer and other financial information must remain confidential at all times.

Question 36

Ethics in business: fundamental principles: Professional behaviour

Answer 36

All staff are expected to behave in a professional manner, both inside and outside the workplace. They should not do anything to discredit their profession or the organisation for whom they work.

Question 37

Classification of contract terms: explain express and implied terms

Answer 37

• Express terms: explicitly stated terms which are binding on both parties to the contract
• Implied terms: terms which are not stated, but which are implied by trade custom or by law
• Express terms are written into the contract; implied terms are not

Question 38

Classification of contract terms: explain conditions and warranties

Answer 38

• Conditions: fundamental terms of the contract which, if broken, will enable the injured party to reject the contract and to go to court to sue for damages
• Warranties: minor terms which if broken can be cause for an action for damages for loss suffered; the contract, however, remains in force
• Conditions are important terms, warranties are less important

Question 39

Remedies for breach of contract: Action for the price

Answer 39

Is the normal remedy for breach of contract involving a customer who refuses to pay up. A common legal term used is damages, which is money compensation for loss or injury.

Question 40

Remedies for breach of contract: Specific performance

Answer 40

Order by the court to complete the work

Question 41

Remedies for breach of contract: Quantum meruit

Answer 41

Which means “what it deserves”, the law assumes a promise made by the employer to the builder that he will pay him for his work, as much as he may deserve or merit.

Question 42

Termination of a contract: Completion

Answer 42

This is where all that is required in a contract has been done

Question 43

Termination of a contract: Impossibility of performance

Answer 43

This is where the circumstances dictate that the contract take place

Question 44

Termination of a contract: By prior agreement

Answer 44

Where the parties involved in the contract agree in writing beforehand that if a certain event take place then either of the parties can give notice and pull out of the contract

Question 45

Termination of a contract: Rescission

Answer 45

Means a termination of the contract because one of the parties made a mistake or misrepresented the facts

Question 46

Termination of a contract: Breach of contract

Answer 46

When a person breaks one of the terms of the contract

Question 47

The Consumer Right Act 2015 states that you are entitled to expect any goods that you receive from a seller to be:
a) Of satisfactory quality:

Answer 47

They must meet the standard that a “reasonable” person would expect given the description and the price.

Question 48

The Consumer Right Act 2015 states that you are entitled to expect any goods that you receive from a seller to be:
b) Fit for the purpose

Answer 48

The goods must do what they are supposed to do, or what the seller claims they can do.

Question 49

The Consumer Right Act 2015 states that you are entitled to expect any goods that you receive from a seller to be:
c) As described

Answer 49

The goods must be what they are claimed to be.

Question 50

The Consumer Credit Act (updated in 2006): A credit agreement governs the following types of contracts:

Answer 50

a) Credit sale agreements
b) Hire purchase (HP) agreements
c) Hire agreements

Question 51

The Consumer Credit Act (updated in 2006): A credit agreement governs the following types of contracts:
a) Credit sale agreements:

Answer 51

Finance options for the purchase of goods and services. This is basically a loan to cover the purchase price of the item, with the loan paid back in instalments over a period of months or years. The item is owned from the date the contract is signed.

Question 52

The Consumer Credit Act (updated in 2006): A credit agreement governs the following types of contracts:
b) Hire purchase (HP) agreements

Answer 52

This is where the consumer pays monthly instalments to hire the item, but will not legally own it until the final instalment has been paid.

Question 53

The Consumer Credit Act (updated in 2006): A credit agreement governs the following types of contracts:
c) Hire agreements

Answer 53

This is the hire of goods in return for a monthly payment. The consumer will never own the item, but must keep up the payments for the term of the contract to avoid having the goods repossessed and being sued for the outstanding debt.