Chapter 2 Flashcards
Which 5 conditions must be met for a contract to exist?
Offer
Acceptance
Consideration
Intention to be legally bound
Capacity to contract
Which 5 conditions must be met for a contract to exist?
Offer
Acceptance
Consideration
Intention to be legally bound
Capacity to contract
For a legally binding contract to exist, all 5 conditions must be met
What are 4 example of what an Offer is not?
Invitation to treat – Where the supplier can discuss willingness to make an offer but has not discuss the terms for doing so yet. I.e., a tender if an invitation to treat as the buyers is discussing their willingness to make a deal but the tender and its documents do not act as the terms to offer. Another example is where a product is on display as an invitation, however, an offer doesn’t exist as the seller can refuse to sell.
Declaration of intention – where an offer was intentional, however, later declined. i.e., an auction house advertising a product for sale, but cancel event thereby declining to offer.
A mere puff (or boast) – Anything not intended to be taken literally. i.e., an exaggerated TV ad which isn’t true. A silly statement that a soft drink can make you stronger etc.
Provision of information – i.e., a plaintiff requests the price of a product, which supplier confirm back price only. This is not an offer to sell. This is just provision of information.
What 2 rules exists where acceptance of an offer does not need to be communicated? ]
The seller can write into contract that it does not need to communicate acceptance i.e. contracts state call offs with automatically be accepted
Mail box rule. If buyer can provide acceptance via letter was sent then supplier does not need to communicate acceptance
Remember, civil law systems i.e. lead by statutes and regulation only do not accept the mail box rule
How can you avoid confusion of the mail box rule?
Both parties should expressly state in any contract what merits an offer & acceptance via a deemed receipt with assumptions made
When negotiating price, think of using the following tactics
Take it or leave it - doe what it says on the tin
Good cop, bad cop - one acts empathetic, one acts harshly. Encourage the supplier to please the empathetic person build rapport
Salami - break concessions into smaller chucks to through more at supplier as supplier may lose track of what they are conceding on.
One last thing - just before final agreement, buyer throughs one last request in the hope that the supplier just wants to agree to conclude negotiations.
Russian front - 2 offers are made knowing one if unreasonable and won’t be successful, however, it is fully explained to make it look like that is the preferred option and the 2nd more reasonable one is not fully explained, but secretly is the most valuable one. idea is the unreasonable one will be decline but the 2nd option is accepted as a concession, even though that was the plan.
Mother Hubbard - buyer state the cupboard are bare, i.e. they have nothing else to offer or they cannot afford to increase their bid
log rolling - buyer puts out many requests knowing most are of little value, so when the buyer needs to concede on tradables, they have plenty to concede on and make it look like they are willing to work together, and they are losing. without actually losing because what they lose was of no value.
What is Retention of Title?
Clause of a contract stating when ownership from supplier to buyer take place. Clause is only applicable to goods as services are never owned.
What type of contract breaches exist?
Material - fail to perform agreed responsibilities as per terms
Anticipatory - advised in advice that they will fail their responsibilities of the terms
Fundamental - The injured party is so heavily affected by the failure of the other that the contract ceases
What type of contractual damages exist?
Liquidated damages - a fixed amount of money pre agreed by bother parties payable when contract is breached. As it is expressly stated in contract no legal action is required obtaining funds.
Adv - pre agreed, no need for legal action
Dis - could receive less than what damages cost to injured party
unliquidated damages - refers to when parties do not know the cost of breaches in advance so need legal action is a court of law to settle on a fair sum
Adv - full amount of loss can be recovered
Dis - has to be awarded through court
Remember, an exclusion clause is also referred to limitation of liability
Remember, an indemnity clause is pre agreement of what liabilities one party will cover no matter the cost. thus, you can have Limitation of Lability but the supplier then indemnifies at full cost for death etc
What 5 ways are there to terminate a contract?
Breach
Performance
Prior agreement
Recission
Completion
What options are available for conflict resolution?
In order:
Negotiation - Often talks between senior employee of both parties
Mediation - impartial 3rd party aims to bring both parties to compromise
Arbitration - expensive form of mediation however in a court room setting and very formal
Litigation - legal process whereby a judge decides the outcome. long winded and expensive
What ratio are used for Liquidity?
Best to write these down as revision…
Current ratio = total current assets/ current liabilities. Ideal result is over 1
The above shows a supplier ability to pay short term debt with assets. This can be undermined by what actual assets the supplier has to sell ad how easy they can be sold.
Acid test/ quick ratio/ liquid capital ratio = (total current assets – stock)/ current liabilities. Ideal result is 1:1
The above shows a supplier ability to meet current liabilities with current assets. This is a more accurate representation of a supplier paying debts as it ignored inventory.
What are the 3 main sources of data to base ratio analysis on?
Profit and loss statement also known as statement of comprehensive income
Cash flow forecast – cash flow statement
Balance sheet also known as statement of financial position
Are credit scores weighted and how?
Yes!
- Payment history – 35%
- Amount owed – 30%
- Length of credit history – 15%
- New Credit – 10%
- Credit mix – 10%
Remember, suppliers low score may not be for direct reasons. i.e. company may be newly incorporated, not have an debt history, may not have high level of assets to act collateral yet. Further due diligence would be needed, rather than just rely of a credit search. Buyer could go forward with low score supplier for these reason and mitigate risk by adding terms to contract in their favor. i.e. Buyer agrees to pay supplier on more regular basis (14 vs 30 days), or accept more regular deliveries helping with supplier capacity and ability to invoice quicker and more often.
What does a balance sheet show?
An organisation financial position at a single point of time.
Which financial activities does a cash flow statement look at?
Operating activity – payment to staff and suppliers
Investing activity – interest received, and debts paid
Financing activity – payments to shareholders
