Question

1. Bob’s Office Supply in Las Cruces is trying to compete against Staples. Many of his customers purchase copy paper from Bob but explained that Staples sells the same paper for a cheaper price. Bob explains that Staples buys in huge bulk so they have a lower cost and thus can sell it for a cheaper price and still make a profit. Bob has been buying 5,000 boxes of paper per month, which is about how many boxes he sells per month. Bob asks Kimberly Clark if they have any additional discounts available and is told that for orders over 50,000 boxes then there will be a substantial unit price discount available. Bob complains that as a small business he cannot afford to buy and store 50,000 boxes of copy paper when he can only sell 5,000 boxes per month. At a small business luncheon Bob overheard a conversation with similar circumstances and someone said the solution involved a good contract. Bob was uncertain what that meant and has now come to you for advice.
2. List the 5 elements of a contract, as we discussed in class, and briefly explain what each represents? [Hint: MAC L RAC].

Answer 1

The 5 elements of a legally binding contract are the following;

1. An Offer
2. Acceptance
3. Consideration
4. Mutuality of Obligation
5. Competency and Capacity

The elements are detailed below;

An Offer: An offer is a promise one party gives to the other to do something or not to do something. There are implicit and explicit contracts. Implicit offers are when you meet a hair dresser and he cuts your hair without asking how much the payment will be or making a contract agreement stating that he will be paid for the service. Explicit offers on the otherside explicitly states the terms and conditions of the offer whether verbally or written.

Acceptance: This is the act of acceptance of the offer made by the first party, by the second party.

Consideration: Consideration is the value that is stated, will be exchanged up on execution of the contract. This may be implicitly or explicitly stated. In the above example of hair dressing, it is the money you are going to give him after performing the dressing.

Mutuality of Obligation: This is the act from both parties in acting in good faith to the terms and conditions made in the contract agreement.

Competency and Capacity: This is the capacity of the parties to understand and execute the contract. Persons who are mentally ill or minors or people under substance abuse cannot execute a contract in good faith and competency and capacity requirement addresses such things.

Note: In this case, Bob can make a contract with Clark for supply of the goods over a period of time. He may be able to execute the contract by placing a bulk order for 50,000 and then using clark's facility for storage. They need to negotiate and prepare the terms and conditions duly.