Legal Issues: Contract & Agency Law

The fundamental elements that must be present to show the formation and existence of a legally binding contract include: 1) an offer, 2) acceptance, 3) consideration, 4) mutuality of obligation, 5) capacity and competency, 6) lawful purpose (Koffman and MacDonald,2007). However, when a party files a lawsuit (dispute) claiming that there was a breach of the contract, for the judge to make a fair decision, he/she must answer the question of whether there was a contract between the parties. In this case, the plaintiff must prove at least four elements to demonstrate that a legally binding contract existed.

An offer

An offer is simply a proposal made by a party (an offeror) to enter and react upon the contract. In other words, an offer is normally a promise to do or fulfill certain obligations. However, a legally binding contract is formed by accepting an offer. The party receiving an offer is called the offeree. In this case, when a party intends to take/accept such offer and informs the offeror about the acceptance, then a legally binding contract is formed. For example, a carpenter’s offer to make a customer’s table for $80 is probably conditioned on the customer’s promise to pay for the completion of the work. And a customer’s offer to fully pay the carpenter the sum of $80 is probably conditioned upon the carpenter’s successful completion of his job. In other words, an offeree’s position of acceptance is made when the offeror communicates his/her intent to enter or sign a contract, and specific terms must be informed to the offeree.


According to Wilmot et al.,(2009),acceptance of an offer implies the expression of agreement to its terms and conditions. An acceptance must be made in a manner as clearly identified by the offer. If there is no sign of acceptance as indicated by the offer, the acceptance is said to be made under a reasonable circumstance. The acceptance must be valid, but if the party is accepting an offer that party must demonstrate an intention to accept and acceptance must be expressed as an unconditional and unequivocal assent.

Some offers specify the mode of acceptance, whether it isa written or oral offer, in person or by phone calls, by ceremony or handshake. In most cases, many offers provide an open mode of acceptance, giving the offeree a chance to accept in a reasonable manner. However, acceptance can be implied from someone’s conduct (Wilmot et al., 2009). For example, a customer makes an order of a smartphone with extra specifications and capacity for its camera and memory card and upon the payment the customer notices that the smartphone does not match the qualities. If the customer pays the full amount as stated on the invoice accompanying the smartphone without demonstrating his/her dissatisfaction, the customer has already consented to a legally binding acceptance of a non-conforming product.


A contract is mainly based on the exchange and bargain. Each receivesvaluable items and gives valuable items. Therefore, consideration is a general name given to that valuable “value” provided by each (Simpson et al., 1985).Much issuecomprises a consideration: forbearance, act, modification, a promise, and destruction of the legal relation. Under a bilateral contract, each party must exchange the promise for the promise. For example, if the ministry of health hires a contractor to build hospitals, the contractor promises to construct/build hospitals and the ministry also promises to pay a specific amount of money. In this case, each promise is called a consideration for the other.

Mutuality of Obligation

Mutuality of obligation is closely related to the general notion of consideration. Under this concept, both parties are bound by the contract to perform an obligation. Furthermore, when an offeror and offeree agree and exchange a promise to perform an obligation, one party may be granted the power and right to terminate the contract. For example, a water supplier might legally be granted the right to cancel the supply of water if the right to terminate was conditioned upon rainy season; it is out of the supplier’s control. However, the courts of law would discover mutuality lacking only if the supplier were granted a right to cancel the service short of whole performance simply by providing a notice of his intention to terminate the contract.

Competency and Capacity

Any person who enters a legally binding contract should have a legal capacity to be held responsible for the duties he/she agrees to perform unless the person is under 18 or 21 years old depending on the constitution or jurisdiction. A legally binding contract made by a person under 18 or 21 years old is not valid at person’s behavior to avoid revealing private information or causing offense, meaning that a contract is announced valid until that person takes a specific affirmative act to deny the contract. Furthermore, when a person does not clearly understand the consequences and nature of the contract that he/she has entered, the court treats that person as lacking a mental capacityas well as competency to make a legally binding contract. In other words, legal competency is when a person has the ability to make a legally binding contract successfully (Koffman and MacDonald, 2007).

Lawful Purpose

The right to contract is open to anyone willing to enter into a contractual business. It must be in a way thatdoes not contradict with the public order, and fair restrictions may be enforced when needed for the public interest. For instance, the minimum wage legislations restrict individual’s right and freedom to enter a contract for a lower wage. In general terms, a contract that seems to violate the law is void and unlawful and will not be implemented(Wilmot et al.,2009). A law can precisely declare that a particular type of contract is not possible, and such kind of contract is not legally binding.

Case Citation

Mrs. Carlill v Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [7 December 1892] EWCA Civ 1


The Carbolic Smoke Ball Co. manufactured a product called Smoke Ball. The company placed the ads in many newspapers offering a reward of £100 to anyone who used the smoke ball three times per day as prescribed and contracted colds, influenza, or any other illness. Furthermore, £1000 was deposited with the Alliance Bank showing the company’s seriousness to be legally bound.  When Mrs. Carlill saw the advert, she purchased a smoke ball and used it as instructed. Mrs. Carlill contracted influenza and claimed for the reward. The company refused and Mrs. Carlill sued for damages as a result of the breach of contract. The Company, represented by Asquith, lost its claim at the Queen’s Bench. The Carbolic Smoke Ball Company appealed straight away.

Analysis of the case

Mrs. Carlill vs. the Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1 is a contract law judgment made by the Court of Appeal that held an ad entailing specific conditions to receive a reward constituted a legally binding unilateral offer that might be accepted by any person who fulfilled its terms. Mrs. Carlill vs. the Carbolic Smoke Ball Co is often considered as a vital introductory contract case.

The producer placed ads that anyone who discovers that it did not work would get a reward of £100, a considerable sum of money by that time.  The Carbolic Smoke Ball Company was found legally bound by its ad, which is interpreted as an offer, and anyone who used the Smoke Ball accepted the offer. Furthermore, the Court of Appeal explained that the fundamental elements of the contract were all present, including an offer, acceptance, consideration, and an intention to enter legal relations(Simpson et al.,1985).

In my opinion, the judges were right in dismissing the suit because of the following: First, by making a unilateral offer for the sale of its products Carbolic Smoke Ball Co. they had implicitlywaived the requirement of notice of acceptance. Second, there was a satisfaction of the conditions of using the smoke ball that amounted to acceptance and, thus, validating the court’s decision. Thirdly, consideration being the price paid for the promise, in my view, Mrs. Carlill’s purchasing and using the smoke ball fulfilled this particular element of the contract as it acted as a benefit to the company. Lastly, the depositing of £1000 with the Alliance Bank was a serious action that would bound the company as it did. Therefore, I agree with the court’s decision.


Business name: Mineral Water and Bottling Company Ltd.

I would like to start up a mineral water and bottling company that will be confined to producing and supplying of water to potential customers. I understand that in every business setting, there are certain issues that occur in the process of business operation ranging from internal and external barriers such as government interferences and customer complaints. Therefore, I hope to enter into a contract with my customers. However, there are certain contractual concerns related to this particular business, and they need to be considered.           According to the contract law, at least two to four elements of a contract must be present including an offer, acceptance, consideration, and an intention to enter a legal contract (Simpson et al., 1985). As mentioned above, the offer will be my proposal (or promise) upon the contract. However, the contract will be made after the customer’s acceptance of the offer as well as the products. The customer’s entering into a contract with mineral water and bottling company Ltd will serve to fulfill the specific elements of the contract and act as a benefit to the company. Furthermore, consideration is also another contractual factor that will amount to the price paid for the offer as well as a promise (Koffman and MacDonald, 2007; Wilmot et al., 2009).


Mrs. Carlill v Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [7 December 1892] EWCA Civ 1

Simpson, A. W. B. (1985). “Quackery and Contract Law: The Case of the Carbolic Smoke Ball”. Journal of Legal Studies 14 (2): 345–389.

Koffman L, MacDonald E. (2007). The Law of Contract. Oxford University Press. Pp. 13 (45): 553-65.

Wilmot et al.(2009). Contract Law, Third Edition: Oxford University Press.Pp. 34-37.

Developing A plan to gain URAC Accreditation

URAC Accreditation

 Goal: To help students who drop out of college as a result of drug addiction to transform their lives and continue with their studies.

Plan: Establish a drug rehabilitation facility and equip it with the necessary equipment and qualified personnel. The facility will help the drug addict students to change their addiction problems and concentrate on their academics. This service will ensure an increased quality of education and promote the competitiveness of the institution.

Background Information on Accreditation

According to Mays (2004), accreditation is always a voluntary program whereby qualified external reviewers assess a healthcare institution’s compliance and compare the organization with pre-established performance standards. Establishment of the facility will be designed to help the addicted students to not only cleanse their bodies but also enable them learn how to cope with the addiction. The objective of this paper is to develop a plan to gain URAC Accreditation for the newly introduced Drug Rehab and Rehabilitation facility. URAC is a non-profit organization that aims at promoting health care equality by accrediting healthcare institutions.

According to Montagu (2003), the organization’s accreditation process involves the review of procedures and policies and visiting the organization to find out if, indeed, it operates according to its. Once the applicant organization successfully passes the URAC review, URAC offers accreditation valid for two to three years from which the institution must undergo the review process again. If URAC finds that the organization is not operating according to the stated policies, it revokes the accreditation of the organization.

Why accreditation?

The plan needs URAC Accreditation on the quality and qualification of personnel and equipment to improve the quality of healthcare and promote the academic development of students. This introduction of the facility on campus is as a result of drug addiction of students leading to their expulsion from the college. The parents have on several occasion, complained and demanded the institution to find a solution to this problem. In response to the parent’s demands, the university considered opening a drug addiction and a rehabilitation center. The facility will help the students who are addicted to reform and change their lives, rather than the institution expelling them.

Duration for the facility

According to David (2014), the plan involves a rigorous process of thoroughly reviewing the equipment and personnel who are eligible to work in the drug addiction and rehabilitation facility. This program is set to take a short period running from three weeks to three months to a long term period of more than three months to eighteen months. This duration depends on the length of the addiction, which varies from person to person (David, 2014). The longer the stay, the better and the more successful the recovery from the addiction. When admitted to the facility, an addict will be given an assessment. According to David (2014), during the assessment, the facility’s staff will take the medical history and personalities of the patient including the nature of the addiction. This evaluation will determine how much time the addict needs to stay in the facility while receiving treatment. The next step of the treatment will involve detoxification. Cerqueira (2006) believes that the detoxification may take four to fourteen days, and the duration time it takes to detoxify the addict’s body will influence the time for the treatment of the addiction.

Resources needed for the facility

The drug addiction and rehabilitation center established will have treatment facilities that will provide the addicts with constant care. According to Mays (2004) the addicts need to be comfortable since they go to the facility voluntarily with the aim of transforming their lives. The patients also expect to receive help with all aspects of addiction. The facility will consist of the necessary equipment, doctors, counselors and nurses who will take care of the addicts. The cost of the program is dependent upon whether the patient is an outpatient or inpatient (David, 2014). The program will charge a minimum of $7,500 per month, for the low luxury programs and up to $20,000 per month for the high-end luxury program. The research-based estimate ranges from $18,000 to $35,000. This facility will employ two doctors, three counselors, and six nurses. The cost of hiring one doctor per month is an average of $12,500 depending on experience and academic qualification. The counselors will earn a minimum of $8,300 while the cost of hiring one nurse is a minimum of $5,000 per month.

The institution will also employ other support staffs. Their wages will depend on their qualifications and job group. However, the organization decided to lower the cost to make it affordable for the students within the institution and from other institutions. Nevertheless, these costs might be significantly reduced if the facility is not accredited. This reduction in cost is because people will not have trust in the quality of its services. Therefore, the institution will have to lower the monthly fee to attract clients. The reduction in the revenue means that the facility may not be able to sustain itself. The workers need to pay from the revenue collected. The institution will be running at a loss.

The institution’s facility will also face great competitions from other accredited institutions providing the same services. However, the following four things will affect the cost of the program:

  • Duration of the program
  • Amenities provided
  • Location
  • Type of the program

According to David (2014), the duration of the program will affect the total cost. For a short program, the duration is from three weeks to one month that translates to a lower total cost of the program. For a long program, the period runs from three months to eighteen months, which translates to a higher overall cost.

The amenities of this program range from animal therapy to professional chefs and to high-end programs such as massage therapy, acupuncture and yoga classes that aid in quick recovery from addiction. Cerqueira (2006) argues that the counselor will determine the time of stay during the intake session for best recovery. The situation of the facility will as well affect operational cost and the service cost. If the location of the facility is in areas such as the beachfront, then the revenue will be high (Montagu, 2003). When the rehabilitation facility is far from the clients, then the cost of traveling will add to the overall cost (Cerqueira, 2006). The type of program one wants to enroll will also affect the price. For an inpatient, the costs are higher since the patient is required to live on the premises. For outpatient, the cost is low since the patient is not required to stay in within the premises (Montag, 2003).


For URAC to offer accreditation to the new facility, the following things must conform to the policies of URAC:

  • Staff Qualifications- for the facilities accredited by URAC, the doctors, and the nurses are required to be licensed or certified by the accredited institution.
  • Quality Assurance-URAC requires a thorough review of service quality and utilization and analysis of the patient’s outcomes to ensure effectiveness. The quality assurance will also include the study of the equipment used.

In summary, the newly created facility must comply with URAC’s requirements for it to be accredited. This program will significantly improve academic performance and transformation of drug-addicted students. Accreditation of drug addiction and rehabilitation facility will ensure that customers get the best healthcare, although it cannot guarantee one successful outcome.


Cerqueira, M. (2006). The Literature review on the benefits, challenges and trends in accreditation as a quality assurance system. Victoria: The British Columbia Ministry of Children and Family Development.

David Sack. (2014). What Does Drug Rehab Accreditation Really Mean?

Mays, G. P. (2004). Can accreditation work in public health? Lessons learned from other service industries.

Montagu, D. (2003). The Accreditation and other external quality assessment systems for healthcare. DFID Health Systems Resource Centre Working Paper.  .