THE LAW OF CONTRACTS (Continued) Assignment of Contracts. Contracts which do not depend on personal service, skill, ability, or trustworthiness of one or all of the parties involved may be assigned by either of the parties. Of course, if one of the conditions in a contract forbid its assignment, it could not be assigned. Assignments should be in writing, whether the contract is an oral or a written one. If it is a written one the assignment can be made on the back of the contract, and if it is an oral one the assignment can be made in writing anyway. A contract governed by the Statute of Frauds must be assigned in writing. However, there is nothing to prevent the assignment of contracts not governed by the Statute of Frauds by "word of mouth" or by "delivery". The assignee becomes liable to perform all the duties of the party who assigns the contract and receives only such rights as the original party enjoyed. His title is no better than that possessed by the original party. If the other parties possessed any defenses against the assignor, they possess the same defenses against the assignee. By defenses is meant fraud, duress, undue influence, offset, etc. Novation. A novation is the substitution of other parties, or another party, not originally bound by the contract, for one of the original parties to the contract. This can be accomplished only by agreement of all the parties concerned. Discharge. There are five principal means of discharging contracts: 1. By performance. 2. By agreement. 3. By operation of law. 4. By intervention of impossibility. 5. By breach of contract. Performance. This is the simplest method of discharging contracts and it is the usual way. When all parties to a contract have fulfilled their agreement in full, the contract is discharged. Agreement. By mutual agreement, all the parties to a contract may set it aside, thereby discharging it. However, this agreement is simply another contract and must conform to all the conditions of a legal contract. Usually there is simply an oral agreement that the contract be discharged, that is, a mutual understanding of all the parties concerned. It should be definitely understood, and in some cases, it would be best to put it in writing. Operation of Law. A contract may be discharged by the making of a new contract. Usually this is one of a higher order. A written agreement discharges an oral agreement and an agreement under seal discharges a simple contract in writing. Practically all contracts are discharged by bankruptcy. Taxes, judgments, alimony allowances, and debts created by fraud, embezzlement, misappropriation, or defalcation while in charge of a trust are exceptions to the rule of discharge by bankruptcy. Death discharges executory contracts for personal service in which skill and taste are involved. Intervention of Impossibility. A contract to do something that was impossible from the beginning is void. It is best, however, to make provision in the contract for strikes, war, acts of God, etc. By "acts of God" is meant floods, tornadoes, hurricanes, public calamities, etc. Breach of Contract. Violation of the terms of a contract is called a breach of contract. The innocent party to a contract may be discharged from further liability if the other party fails. to do something which he agreed to do or does something which he agreed not to do. If the breach is such that the innocent party is not discharged from his obligations, he will be entitled to either money damages or to the right of "specific performance". A court may compel a party to a contract to do as he agreed to do or to perform all the terms of the contract. This is known as a "specific performance." A Tender is an offer to pay. A tender of payment or an offer to perform the conditions of a contract does not discharge the contract. One may avoid penalty for non-payment, court costs, and interest on the debt from the time of the offer by making a tender; but he must hold himself ready to pay or perform the conditions. In case the offer to pay is made in money, it must be made in legal tender. Legal Tender is that currency or money which the law authorizes a debtor to tender and requires a creditor to receive in payment of money obligations. All gold coins of the United States are a legal tender in all payments at their nominal value when not below the standard weight and limit of tolerance provided by law for the single piece, and when reduced in weight below such standard of tolerance, they are a legal tender at valuation in proportion to their actual weight. Treasury notes and standard silver dollars for all pay ments. Silver coins of a smaller denomination than one dollar for all sums not exceeding $10.00. Nickels and pennies for sums not exceeding 25c. Notes of the United States for all debts, public and private, except duties on imports and interest on the public debt. Gold certificates payable to bearer were made legal tender under a Senate bill passed by the House December 19, 1919, and signed by the President. The following chart is intended as a general review of contracts and should be carefully studied. 1.-Competent parties 1.-As to Essentials 3.-Sufficient consideration 4.-Legal subject matter [ 1.-By performance 5.-As to Discharge 3.-By intervention of impos sibility 4. 5. By operation of law A. THEORY QUESTIONS I. If in the examination of the accounts of a merchant, the balance shown in the bank, or the balance as certified by the banker, agreed with the balance as disclosed on the merchants' cash book, would you consider any further examination necessary? C. P. A. Ind. 2. The cashier of a firm had disappeared. The cash book is left written up and balanced off, the custom being to pay any cash balance into the bank each day. What course would you pursue to ascertain whether there were any defalcations. C. P. A. Mich. 3. Name some of the advantages of the use of additional columns in the cash book. C. P. A. Ohio. 4. If the actual cash on hand at the date of the Balance Sheet had not been verified by the auditor on the day of balancing, what method should be employed to prove the correctness before signing or certifying the statements. C. P. A. N. Y. 5. You are required to make a detailed cash audit for three years ending October 31, 1917. You find a disbursement for "Rent October, 1914, $1,000.00" on November 6, 1914. You are told the receipt is missing and the duplicate cannot be obtained. You are shown as a voucher a check dated November 6, 1914, payable to the landlord or order for $1,000.00, endorsed with a rubber stamp and marked by the client's bankers "paid". State with your reasons whether you would accept this as sufficient evidence that the payment was made as recorded and, if not, what course you would adopt. Inst. Ex. 1917. B. ACCOUNTING PROBLEMS I. The result of your count of the "Cash on Hand" at a large agency on January 1, 1912, discloses: Jan. 14, 1908, Sub-agent Jones....$200.00 $1,979.00 July 20, 1909 Thomas.. 140.00 Aug. 20, 1909, Vincent.. 75.00 Sept. 30, 1910, Nelson... 230.00 645.00 Cash balance as per general ledger.... $3,108.19 Does this count complete your duty as an auditor? If you consider that further steps are necessary, state what you would do. C. P. A. La. and Ore. 2. The cash book of a general trading concern shows for the month of January, 1912, the following: A Petty Cash Fund is operated on the Imprest system. The books had been audited to the 31st of December, 1911, and the fact established that the overdraft of $10.32 was correct, after all checks drawn had been presented and paid by the bank. The deposits in the bank for the month of January, as shown by the bank pass book, after having it balanced at the close of business January 31, amounted to $13,854.37, and the checks returned by the bank for the same period totaled $8,832.34. There were checks outstanding at the time of balancing, January 31, amounting to $53.27. Fraud is suspected on the part of the cashier, and you are asked to check the transactions recorded by him as shown by the cash book. Prepare a statement showing the results of your investigations. Your statements should show total amount of the discrepancy. Also state, with reasons, what further documents and records you will require, if any, to trace the cash transactions fully. C. P. A. Ohio I. C. LEGAL QUESTIONS Enumerate the methods by which contracts may be discharged. 2. What is your understanding of the term "Legal Tender"? Having defined this, state what falls within that designation in this country. C. P. A. Ill. What is a tender to perform a contract, and what is its Inst. Ex. 1918. 3. effect? 4. Give an illustration of a debt or claim that is not dischargeable in bankruptcy. C. P. A. Mich. 5. In what way may a contract be discharged by operation of law? Inst. Ex. 1918 |