Martha offered to sell her prized orchid for $1000. Joseph telephoned her and expressed his great interest in that variety of orchid. He however could not pay the $1000 she asked but could manage to pay $800. Joseph then promised that he will visit her later to pay for and collect the orchid.
Later that day Joseph visited Martha with the money to pay for the orchid. Martha informed him that she had already sold the orchid for $1000. Joseph was furious and told Martha that it was not only unethical for her to sell the orchid to someone else but it was also illegal.
Did a valid contract exist between Martha and Joseph? Explain the reason for your answer.
A valid contract did not exist between Martha and Joseph.
An offer was initially made by Martha. Joseph wished to obtain the orchid but could not pay the amount asked by Martha. He therefore made a counter offer of $800.
Martha did not clearly accept his offer and therefore a contract did not exist. Since a contract did not exist, Martha is allowed to sell the orchid to whomever she chooses.
Differentiate between a simple and a specialty contract.
A simple contract is legally binding if there are an offer, acceptance and consideration. A specialty contract must have all these in addition to it being documented, signed sealed and delivered.
Outline three reasons for the discharge of a contract.
If the time for which the contract must be executed is passed, then the contract can be brought to an end because of lapse of time.
If there is a mutual agreement between the parties of a contract to bring the contract to an end.
A contract may also be discharged if one of the parties to the contract dies.
You purchased an item from a variety store and were not given a receipt. The owner explained that he never usually gives a receipt. Explain to him the importance of not only a receipt but two other business documents to the operation of his business.
A receipt is proof of payment for goods or services bought. It not only provides protection for the purchaser but also is a record of money received by the business. Two other important business documents are an invoice and a statement of account.
An invoice is a bill outlining the total amount owed by customers for goods or services. It also informs the customer of deadline dates for payments and any discounts offered. A statement of account informs customers of all payments made within a specific time period and outstanding balances at the end of that period.
Outline two ways of making payments overseas.
A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank drafts can be made out to a payee in foreign currency and thus used for making overseas payments.
Letters of credit are used in international trade to make payments for imports. Payments to exporters are guaranteed through the bank.
Explain the importance of the following documents in international trade:
- Certificate of origin
- Import license
- Bill of lading
- Certificate of insurance
Certificate of Origin
A certificate of origin states the country in which goods imported were manufactured. It informs importing countries if goods are to be accepted in the case of a ban and if tariffs to be charged.
Ensures that approved goods and quantities are imported
Bill of lading
Ensures the safety of goods in transit and delivery to receiver
Certificate of insurance
This ensures that there is financial protection for goods during transit
You are a business owner in a Caribbean country and wish to export. Explain how you would ensure that payments are received for items exported.
Request from the importer an irrevocable letter of credit. This ensures receipt of payments once an order is filled.
Explain the purpose of insurance and identify four fundamental principles.
The purpose of insurance is to indemnify the insured who suffers loss. It ensures that the insured is returned to the exact position he was financially before the loss occurred.
Four principles of insurance are:
- Utmost Good Faith
- Proximate Cause
- Average Cause
Differentiate between Insurance and assurance and give four types of Insurance.
Insurance refers to the coverage of events that may occur e.g. an accident. Assurance on the other hand covers events that are inevitable such as death.
Four types of insurance are Bad debt, Plate glass, marine, and employers’ liability.
Show how three types of insurance is beneficial to businesses.
Bad debt insurance covers any loss that a business might incur if customers do not make payments on outstanding balances.
Plate glass insurance covers any damage to customers or anyone else due to the accidental breakage of a shop window. The cost of the window is also covered by the insurance company.
Employers’ Liability covers injury to staff or visitors on a business location due to the negligence of the company.