S4: Entrepreneurship

Key Unit Competence: To be able to make a valid contract in business operations

Introductory activity
Sam met with a businessperson on a football match who requested him to be supplied with beans at a price of 500 Frws per kilogram. When Sam delivered 200kgs, he was not paid the full amount of money they had agreed upon.

Questions.
a) Has such a situation ever happened to you? When and what happened?
b) What mistake did Sam do?
c) Assume you were the one in such a situation, what would you do?
d) What advice would you give to Sam and the businessperson?
e) What lessons do you learn from the above situation?

12.1 Meaning and Forms of Business contracts

Activity 12.1
Bayigana operates a small medium enterprise in Huye and wants Ishimwe to supply his business with goods. Bayigana tells her to start right away and supply the goods they will discuss other issues later. She insists that she needs an agreement between the two

especially on issues of price, mode of payment, delivery period, quantity and quality, among others.
Questions;
a) How do you call an agreement Ishimwe insists should be between them?
b) Do you think she is right to have the agreement before starting the supply of goods? Give reasons to support your answer.
c) In which way/form may the agreement be made between the two? Support your answer
d) What do you understand by the term contract and business contract?

12.1.1 Meaning of contract and Business contract

A contract is a legal binding between two or more parties and can be enforced by law.
Example in marriage the woman and man make a contract during civil marriage. The three parties are woman, man and witness will come to testify before the law represented by Executive secretary of sector.

Before starting a job, the employer and employee make a contract. In this case there two main parties and the law is now represented by official labor law because it is not possible to make a job contract which is against the labor law.
A business contract is a legal binding between two or more persons/ entities
to perform an agreed business transaction and can be enforced by law. The day today running of the business involves making contractual obligations with suppliers, buyers etc.
Example: A farmer can make a contract of supplying chicken to the hotel. In most cases this contract is written and two parties should sign to that document. This contract should
follow the official law like the right person who represents the hotel and the farmer should have maturity age. The two parties should sign with free consent. Once signed it becomes a document which binds the two parties.
12.1.2 Forms of business contracts
Oral contract is an agreement between two or more parties by use of words. They are non-written contracts. They rely on the good faith of the parties but can be difficult to prove. Once the contract is verbal, the wittiness is mandatory and provides evidence.
Written contract is a contract documented on paper, signed by the contracting parties and witnessed by a third person (the witness).

Read the following statements and answer questions that follow:
- Nkusi wants to lend his car to Niragire for 5,000Frw per day for five days.
- Niragire agrees with a handshake to borrow the car from Nkusi and pay the money in witness of Rukundo.
- Ntezimana promises to take his girlfriend Bagirishya for an outing to Lake Kivu.
- Niyokwizerwa promises to pay 10,000Frw to whoever finds her lost phone.
- Gato puts on paper his commitment to provide printing services to Umutoni on agreed terms.
- Mutesi promises to pay for her brother’s school fees and puts it in writing.
Questions:
Which of the above statements are?
a) Contracts.
b) Not contracts.
c) Business contracts.

12.2 Valid contract.

Activity 12.2

1) Analyze the figure below and answer the following questions.

Questions
a) Do you think the above sample is a contract? Give reasons to support your answer.
b) Name the elements of the written contract above.
c) Do you think the sample above is a valid contract? Support your response by mentioning the elements of a valid contract in the sample provided. (If any?)
2) Describe different parties to a valid contract.
3) Kamaliza’s 16-years old son, who looks a bit older, he signed a contract joining a health club. He has dues of 15000 Frws. is this contract valid?

12.2.1. Parties to a contract
are persons who can sign the contract. For a contract to be considered valid, it shold include three parties. These are Offeror/promisor who makes an offer, Offeree/promisee to whom an offer is made and Witness who sees an event happening.
For example, in the above template Mr. John Muhire Offeror/promisor agrees to sell his car to Umugwaneza Nadine Offeree/promise at 2 million.
Two parties to contract Offeror/promisor and Offeree/promisee must have “capacity”, legal ability to make valid contract. Assent of parties is a must. If either parties is deprived, use of his understanding or deemed by law not have attained then such an agreement shall not bind him. All parties should have Age majority, sound mind and qualified for contract by law.

The information of two parties in contract should be clear, complete and concise. In any case, the names are not enough, it should be better to include other information like number of identification card, the location where those documents are issued. Ensure that all information is well reflected on the contract. For example, in above contract there is a mistake in writing names. Umugwaneza Nadine who sells the car is not the same Mugwaneza Nadine who signs the contract. These slit mistakes can disqualify the contract.

Witness is a person who sees an event happening. In a legal contract, a witness is someone who watches the document be signed by the person they are being a witness for and who verifies its authenticity by signing their own name on the document as well. However, if you have a legal document such as a mortgage or a Will the chances are that you will want a witness to attest to your signature. Generally, the person you choose to witness a document should have no financial or other interest in an agreement. A neutral third party is the best choice

12.2.3. ELEMENTS OF A VALID CONTRACT.

For a contract to be valid and therefore enforceable by law, it must have the following elements:
Intention to be bound by the contract: the two parties should have intended that their agreement be legal. Domestic agreements between husband and wife are not taken as valid
Offer and acceptance: there must be an offer and the two parties must lawfully come to acceptance leading to a valid contract. Until an offer is accepted, it’s not a valid contract
Consideration/price: this is the price agreed upon by the parties to the contract and paid by one party for the benefit received or promise of the other parties
Capacity of the parties: the parties to the contract must have contractual capacity for the contract to be valid, i.e. should be sober, above 18years, not bankrupt, not insane, properly registered.
Free Consent: parties to the contract must agree freely without any of the parties being forced to accept or enter the contract
Legality/lawful object: the consideration/object of the contract must be legal and not contrary to the law and public policy.
Possibility of performance: if the contract is impossible in itself either physically or legally, then such contract is not valid and cannot be enforced by law
Certainty: the terms of the contract must be clear and understandable for a contract to be valid. If the terms are vague or ambiguous, where even the court may not be able to tell what the parties agreed, then it will be declared invalid.

Imagine if you make a contract without considering the elements of a valid contract. what will happen if the person/ business refuses to pay?

12.3 Designing a contract sample

Prepare a sample of a contract for your school business club with supplies.

Employee Contract Template:
Employment Contract
This contract, dated on the ____ day of ______________ in the year 20____, is made between [company name] and [employee name] of [city, state]. This contract constitutes an employment agreement between these two parties and is governed by the laws of [state or district].
WHEREAS the employer desires to retain the services of the employee, and the employee desires to render such services, these terms and conditions are set forth.
IN CONSIDERATION of this mutual understanding, the parties agree to the following terms and conditions:
1. Employment
The employee agrees that he or she will faithfully and to the best of his/her ability to carry out the duties and responsibilities communicated to him/her by the employer. The employee shall comply with all company policies, rules and procedures at all times.
2.Position
As a [job title], it is the duty of the employee to perform all essential job functions and duties. From time to time, the employer may also add other duties within the reasonable scope of the employee’s work.
3.Compensation
As compensation for the services provided, the employee shall be paid a wage of ___________ [per hour/per annum] and will be subject to a [quarterly/annual] performance review. All payments shall be subject to mandatory employment deductions (State taxes, Social Security, Medicare).
4.Benefits
The employee has the right to participate in any benefits plans offered by the employer. The employer currently offers

. Access to these benefits will only be possible after the probationary period has passed.
5.Probationary Period
It is understood that the first [time frame] of employment constitutes a probationary period. During this time, the employee is not eligible for paid time off or other benefits. During this time, the employer also exercises the right to terminate employment at any time without advance notice.
6.Paid Time Off
Following the probationary period, the employee shall be eligible for the following paid time off: • [length of time for vacation] • [length of time for sick/personal days] • Bereavement leave may be granted if necessary.
The employer reserves the right to modify any paid time off policies.
7.Termination
It is the intention of both parties to form a long and mutually profitable relationship. However, this relationship may be terminated by either party at any time provided [length of time] written notice is delivered to the other party.
The employee agrees to return any employer property upon termination.
8. Non-Competition and Confidentiality
As an employee, you will have access to confidential information that is the property of the Employer. You are not permitted to disclose this information outside of the Company.
During your time of employment with the employer, you may not engage in any work for another Employer that is related to or in competition with the Company. You will fully disclose to your employer any other Employment relationships that you have and you will be permitted to seek other employment provided that (a.) it does not detract from your ability to fulfill your duties, and (b.) you are not assisting another organization in competing with the employer.
It is further acknowledged that upon termination of your employment, you will not solicit business from any of the employer’s clients for a period of at least [time frame].
9. Entirety
This contract represents the entire agreement between the two parties and supersedes any previous written or oral agreement. This agreement may be modified at any time, provided the written consent of both the employer and the employee.
10. Legal Authorization
The employee agrees that he or she is fully authorized to work in [country name] and can provide proof of this with legal documentation. This documentation will be obtained by the employer for legal records.
11. Severability
The parties agree that if any portion of this contract is found to be void or unenforceable, it shall be struck from the record and the remaining provisions will retain their full force and effect.
12. Jurisdiction
This contract shall be governed, interpreted, and construed in accordance with the laws of [state, province].
In witness and agreement whereof, the Employer has executed this contract with due process through the authorization of official company agents and with the consent of the employee, given here in writing.

Employee Signature 

Date 

Company Official Signature
Source: www.betterteam.com/employee-contract-template

Sample of a sales contract
PRIVATE CAR SALES CONTRACT
The Car Details
Make: Toyota SOLD FOR:……… frws
Model……… Registration Number…….. Registration document completed by buyer/seller ..Yes/No . Mileage………. Registration document (V5) exchanged ....Yes/No .
Additional notes and comments agreed on this sale
SELLER'S DETAILS: Name…………….. Address……………… CERTIFICATE of PURCHASE: I am the undersigned buyer of the above car. I have purchased it from the seller named above for the amount of cash also mentioned above (SOLD FOR). This is the final price agreed. I have paid for this car in full and I am in receipt of this car and all the relevant documents to it. The Seller above also acknowledges being in full receipt of all the total amount but I do accept that full title to the car does not fully pass from the seller to purchaser until all cash is paid. Any cheques will need to be cleared before full title passes to myself. It is fully understood that this vehicle is sold as seen. I the buyer agree that I have tried, tested, and approved this car as suitable for my personal needs without any representations, warranties or conditions expressed or implied whatsoever.
Buyer's Name:…………………
Buyer's Address: …………
Buyer's Signature in agreement: …………
Seller's Signature in agreement: …………
Date: …………

Assume, your parents have houses to rent at home, help them design a rental contract that will be signed by the tenants.

Skills Lab 12

With reference to the knowledge of Business contracts, design contract templates to be used in the school business club when dealing with; a) suppliers. b) Customers, c.) Employees of the club, d.) Club members.

End of Unit 12 Assessment
1) Read the case study below and answer questions that follow.

Shine Business club
Shine business club wanted 3crates of soda which they wanted to sell to their school that was organizing a visiting day. Chantal an active member of the club having been close to Bizimungu an entrepreneur dealing in retail business convinced the club to deal with him. The club paid him and agreed he would deliver the sodas to the club after three days but unfortunately after the agreed time, he didn’t deliver the sodas as expected. When the club contacted him for the sodas, he denied having entered any dealing with them that if he did, he would be having at least a formal document to prove that. The club reported the matter to the school administration, but it couldn’t help them since it was not notified of that dealing.
a) What are some of the essential elements of a valid contract observed in the above case study?
b) Was there a valid contract in the above case study? Support your answer
c) What advice do you give to shine business club?
d) How would you approach the situation or the above problem if it was your business club?

2) Analyze the example below and answer questions that follow:
Nkusi and Mukarutesi are capable adults. Nkusi is in the need for a new car. it is on a budget, so he scans the classified advertsiments and finds Mukarutesi, who is selling an old Toyota Carina for 2,000,000Frw. Nkusi calls Mukarutesi and offers 1,800,000Frw. Mukarutesi accepts Nkusi’s offer and they decide to meet. At the meeting, Nkusi hands over 1,800,000Frw and Mukarutesi hands over the keys for the Toyota Carina.
Questions:
a) Is there a valid contract in the above example?
b) Referring to the elements of a valid contract, support your response.
c) Which form of business contract would you advise Nkusi to sign with Mukarutesi?
d) What do you think may lead to the contract in the example above to be terminated?
1) Read the following passage and answer questions that follow.
Ntwali started a business selling general merchandise in his community. He is renting the place where his business operates. Ntwali paid his property owner three months’ rent in advance but never asked for receipt. After two months, his property owner says he wants the rent for the two months. Ntwali is perplexed and tries to remind the property owner that he paid his rent for three months. The property owner denies and asks Ntwali for proof of the payment which he does not
have. Ntwali is stuck, does not know what to do while the property owner threatens to evict him if he does not pay his rent.
Questions:
a) What is the cause of the conflict in the example above?
b) Advise Ntwali on how he can resolve the conflict with the property owner
c) What are the disadvantages of the form of contract between Ntwali and the property owner?
d) Help Ntwali design a written contract that he can sign with his property owner to avoid such conflicts again.