Importance of Business Contract Law and its Implementation - Assignment Example

 Aspects of Contract and Negligence for Business Part A Task 1 Importance of Contract Law Contract law is of great importance in business context. A business professional must know about his rights and responsibilities and financial risk takers should be rewarded. No one is above the law as can easily be seen in Martin Smith v Williams1where a world renowned actor was made to pay damages. In an industry, numerous contracts exist among business, employees, suppliers, contractors, individuals and other businesses. Various lawyers and accountants provide their services both as employees and independent contractors. Essentials of a Contract The first essential of a valid contract is a valid offer. An offer is a clear statement of terms on which a party is ready to do business. It becomes valid when it is free from any ambiguity, communicated to the offeree, and nlegal ot a counter-offer. The next element is acceptance. The acceptance must be a mirror image of the offer, communicated to the offeror, must not be subject to a condition, and must not have any new terms. Otherwise, it becomes a counter-offer. Communication can be through speech, conduct, writing, or by any reasonable method. Otherwise, it is not valid and there is no contract. The third important element is consideration. It has been defined as “a benefit to one party or a detriment to the other” in Currie v Misa2. It must be not be past, must move from the promisee, must be sufficient, must not be something the promisee is legally bound to do and must be legal. The fourth element is the intention of the parties involved to be legally bound. If there is no such intention, there is no contract but a social agreement. When these four conditions are fulfilled, a valid contract is formed. Types of Contract A contract that is formed by just oral agreement and nothing is put into writing is called a verbal contract. For contracts, being in writing is not an essential part and they are still enforceable by law. A written contract is a contract put in writing. It is also enforceable by law. It is difficult to enforce a verbal contract as it becomes almost impossible to provide a proof upon which a decision can be based on. When a contract is in writing, it is easy to prove and enforce. Another type of contracts is made in deeds. A deed is a written instrument used to convey the title or interest in a real estate. Relating mostly to land law, deeds can be regarded as written agreements. However, all written agreements are not deeds. Transfer of deed is tantamount to transfer of title. Terms and Representations During negotiation, many statements are made but all of them do not form terms to the contract. Most of them are mere representations. To become a term, it must be determined whether the buyer has expert knowledge of the subject matter (Oscar Chess v Williams3; Dick Bentley v Harold Smith Motors4), whether it is reasonable for him to rely on such statement (Bannerman v White5) and the time lapse between making the statement and entering the contract (Routledge v Mackay6). A breach of term entitles the aggrieved party to sue for breach of contract whereas breach of representation entitles it to sue for misrepresentation which results in damages or a reduction in price. Conditions and Warranties A condition is a term essential to the contract. A breach of condition gives the buyer a right to treat the contract of sale as repudiated. In Poussard v Spiers and Pond7, an actress was employed to appear in a show from the start but her illness caused her to be a week late. The producers disallowed her return. It was held that there was a breach of condition and the producers were entitled to cancel the contract. Warranty is a term that is collateral to the contract and its breach entitles the buyer to damages or a reduction in price but he cannot cancel the contract. In Bettini v Gye8, an opera singer was engaged for a season of concerts and he agreed to six days of rehearsals but missed the first three. The employer wanted to end the contract. It was held that there was a breach of warranty and not a condition hence the contract could not have been repudiated. Task 2 With Eleanor Hilary had advertised a printing press in a specialist trade journal for £15,000. This was not an offer but an invitation to treat. Advertisements are generally regarded as invitations to treat. In Partridge v Crittenden9, the appellant advertised to sell some birds. It was held that he had not made an offer but an invitation to treat. As a principle, an offer needs to be definite, clear, and final (Miller & Jentz, 2008, p.299)10. If a statement is a mere step to initiate negotiations, it must not be regarded as an offer. When Eleanor wrote to Hilary offering to buy the printing press for £10,000, she made an offer. Hillary replied that she would accept £13,000. This was not a valid acceptance. An acceptance needs to be a mirror image of the offer (Emanuel, 2006, p.27)11. If it has new terms, it becomes a counter-offer. A counter-offer terminates the original offer. In Hyde v Wrench12, the defendant offered to sell his farm to the plaintiff for £1000. The plaintiff said that he would pay £950. After a few days, he agreed to pay the full price but the defendant refused to sell. It was held that there was no contract because the plaintiff had made a counter-offer of £950 which had terminated the original offer of £1000. It was no longer open for acceptance. In the given case, Hillary also made a counter-offer which destroyed the offer of £10,000 by Eleanor. Eleanor had a right of not accepting Hillary’s counter-offer. When Hillary wrote to Eleanor accepting the original offer of £10,000, it was not a valid acceptance as the offer had expired due to Hillary’s counter-offer. Therefore, Hillary is advised not to pursue Eleanor for performance because there is no contract between them. With Amy Hillary wrote to Amy making her an offer to sell an office computer for £1000. Amy wrote her back agreeing to buy the computer for £1000. For an acceptance to be valid, it has to be communicated to the offeror. The offeree has a right to revoke his acceptance. However, revocation of acceptance is valid only if it is made before its communication to the offeror. In this regard, a very famous principle called “Postal Rule” is applied (n.a, 2010, p.1 of 1)13. It emanates from the landmark case of Adams v Lindsell14. In this case, it was established that an acceptance is valid at the time of posting. As against the offeree, the acceptance is complete when he posts the letter of acceptance so that it becomes out of his power. As against the offeror, the acceptance is complete when the letter of acceptance actually reaches him. In Byrne v Van Tienhoven15, it was ruled that an offer is only revoked by direct communication with the offeree, and that the postal rule does not apply in revocation; while simply posting a letter counts as a valid acceptance, it does not count as valid revocation. If an acceptance is to be revoked when it has been made by post as in the given case, it must be made before the letter of acceptance reaches the offeror. When the notice of revocation and the letter of acceptance reach the offeror at the same time, it becomes a matter of chance. It depends on whether the offeror opens the letter of acceptance or the notice of revocation. If he opens the letter of acceptance first, the revocation becomes invalid and a contract is formed. If he opens the notice of revocation first, the acceptance is nullified and there is no contract. In Hillary’s case, it is reasonable to assume that the revocation of acceptance, which has been sent by Amy via fax, has reached Hillary before the letter of acceptance which is to arrive by post. Hence, the acceptance has been validly revoked by Amy. Hillary has no contract with Amy and she is advised not to pursue Amy for performance. Part B Task 3 Breach of Contract Parties to a contract are under an obligation to perform their promises. Failure in performance of a promise under the contract is a breach. A breach of contract entitles the other party to either: Sue for specific performance; Sue for damages; Rescission; or Sue for injunction. The liability under the contract is mainly damages which are awarded to the aggrieved party to compensate for its loss due to breach. Negligence Liability Liability that arises in case of negligence is different from that of a contract. Negligence is a tort that leads to a legal liability. In such cases, some harm is caused to a person due to the negligence of another. For negligence, the parties involved are not required to be in a contract. Instead, there must be a duty of care. Duty of care was established in the famous case of Donoghue v Stevenson16. In this case, the plaintiff drank a bottle of ginger beer which had a snail in it. She fell ill and sued the defendant, the ginger beer manufacturer. It was held that the defendant owed a duty of care to the plaintiff as it was reasonably foreseeable that failure to ensure the product's safety would lead to harm of consumers. As this duty was breached, the defendant was held liable. In order to establish whether there is a duty of care, the courts check whether: i. The harm caused was foreseeable; ii. There was a relation of proximity between the plaintiff and defendant; and iii. It is reasonable, fair and just to impose liability. If any of these conditions is not fulfilled, there is no duty of care and hence, no tort of negligence. Once the tort of negligence is established, the court quantifies the harm in monetary terms and awards damages to the hurt party. On the other hand, in contracts, the aggrieved party is mostly awarded the price of the contract. Damages are awarded only if some other loss is the direct result of the breach of contract. Vicarious Liability Businesses have to be careful as they can be held vicariously liable for the action of their employees. However, it is important to consider whether that subordinate has a “contract of service” or a “contract for services” with the business. Businesses are held vicariously liable for the negligence of their employees which have a contract of service. The negligent acts should be performed by employees in the course of their employment i.e. the acts expressly or impliedly authorized and normal and incidental to the duties of the role. Park B famously stated in Joel v Morison17 that the servant must be engaged in his master’s business, not “on a frolic of his own”. Otherwise, the business is not held liable. In the following cases, the employer was held vicariously liable for the acts of the employee: Limpus v London General Omnibus Co18– despite being prohibited, bus drivers raced and caused a collision; Bayley v Manchester, Sheffield and Lincolnshire Railway Co19– a porter caused injury when he violently pulled off a passenger believing that he was on the wrong train; Century Insurance Co v Northern Ireland Transport Board20– a petrol tanker driver caused an explosion when he threw a matchstick while smoking a cigarette; Rose v Plenty21– a milkman employed a 13-year-old assistant who was injured due to his negligent driving. He was not allowed to make such employments. In the following cases, the employer was not held vicariously liable for the acts of the employee as they acted out of the scope of their employment: Beard v London General Omnibus Co22– a pedestrian was injured when a bus conductor was driving a bus; Twine v Bean’s Express Ltd23– driver gave a lift to a hitchhiker contrary to express instructions and was injured fatally; Hilton v Thomas Burton (Rhodes) Ltd24– after finishing their lunch in a pub, the workmen drove seven or eight miles for tea. The van overturned and killed a passenger. Workers with a contract for services For the actions of workers who have a contract for services with a business, the business is not held liable. It is because businesses usually do not instruct such workers how the work is to be performed. They work according to their own methods and the business is not vicariously liable for their actions as seen in the famous case of Mersey Docks & Harbour Board v Coggins Ltd25. Task 4 A: Brad Brad rented out a flat to Albert after making sure that Albert’s credit history was safe. He trusted the reference of Charles, Albert’s accountant. Charles was negligent in providing the reference and forwarded false information. The reference had an exclusion clause that purported to absolve Charles of any liability for any loss that is incurred as a consequence of his reference. Normally, exclusion clauses are able to exclude one’s liability but they need to be appropriate. In cases of references and opinions, courts may consider the appropriateness of the exclusion clause and the fact whether the parties could have taken an independent advice. In Smith v Eric S. Bush26, the plaintiff bought a house on a surveyor’s report which contained an exemption clause saying that it was issued without any guarantee of accuracy or acceptance of legal liability. The surveyor had negligently overlooked a defect to the Chimney which later collapsed causing a loss. It was held that the exemption clause was unreasonable and ineffective because: The parties did not have equal bargaining power—the plaintiff could not have been expected to know the correctness of the report; The plaintiff could not have obtained a second opinion; and The surveyor was negligent as a reasonable and competent surveyor would have detected the defect. The given case has similar circumstances. Brad does not have equal bargaining power, he could not have obtained a second opinion and Charles was negligent in his duty. Therefore, his exclusion clause would be deemed ineffective and he would be liable for his tort of negligence. B: Terry Terry suffered from a nervous shock when he saw his son fall from the swing as the wires were rusted and in a bad condition. The swing is installed in an amusement park owned by Mr Rogers. Mr Rogers owes a duty of care to all the children who use the swing as seen in the case of Donoghue v Stevenson27. The accident is due to his negligence in maintaining the wires of the swing. Therefore, he is responsible for Peter’s accident which is the direct result of his negligence. Terry’s nervous shock is also a result of Mr Roger’s negligence. There is a rule regarding reasonable foreseeability called the “egg-shell” rule. According to this rule, “provided a defendant could reasonably foresee that a plaintiff would suffer some kind of physical injury, the defendant is liable even if the plaintiff had an exceptionally weak skull, or exceptionally brittle bones, or an unusual heart or blood condition, with the result that the plaintiff suffered a greater degree or extent of harm from that physical injury than would have been suffered by others.” In Smith v Leech Brain & Co28, an employee was burnt on the face by molten metal, which activated a latent cancer condition eventually causing his death. Even though the employer could have foreseen that the employee could be burnt on the face but could not have foreseen the effects of his latent cancer, he was held liable by the court. Similarly, Mr Rogers could not have foreseen the nervous shock suffered by Terry, he would be held liable. If Terry had suffered a financial loss instead of a physical harm, Mr Rogers would have been excused for the unforeseeable result. C: Celtic Railways An eight year old child was injured on the railway line managed by Celtic Railways. He had gained access through a badly maintained, broken fence which divided the railway line from land to which people had access. In Meghji v Lee29, the Plaintiff suffered brain trauma when struck by a motorist while walking in a marked cross-walk. The motorist was found 90% at fault for the crash and the Ministry of Transportation shouldered the remaining 10% for designing the intersection with inadequate lighting. Celtic Railways were aware of the situation and had informed the police but never repaired the fence. The injury of the child is a result of both Celtic Railways—as they did not repair the fence—and the police authority—for it did not stop people from getting to the railway line. Therefore, both parties would be held jointly liable for the harm. The liability might be split equally between them. Reference List Emanuel, S 2006, Contracts, Apsen Publishers, Inc., New York. p.27. Miller, R & Jentz, G, 2008, Business Law Today: The Essentials, Thompson Higher Education, Ohio. p.299 N.a 2010, The Postal Rule in English Contract Law, viewed 13 October 2012, http://suite101.com/article/the-postal-rule-in-english-contract-law-a219512 Cases Adams v Lindsell [1818] EWHC KB J59 Bannerman v White (1861) 10 CBNS 844 Bayley v Manchester, Sheffield and Lincolnshire Railway Co [1873] LR 8 CP 148 Beard v London General Omnibus Co [1900] 2 QB 530 Bettini v Gye (1876) 1 QBD 183 Byrne v Van Tienhoven [1880] 5 CPD 344 Century Insurance Co v Northern Ireland Transport Board [1942] 1 All ER 491 Currie v Misa (1875) LR 10 Ex 153 Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR 623 Donoghue v Stevenson [1932] AC 562 Hilton v Thomas Burton (Rhodes) Ltd [1961] 1 All ER 74 Hyde v Wrench [1840] 3 Beav 334 Joel v Morison [1834] EWHC KB J39 Limpus v London General Omnibus Co [1862] 1 H&C 526 Martin Smith v Williams [1999] EMLR 571 Meghji v. Lee [2011] BCSC 1108 Mersey Docks & Harbour Board v Coggins Ltd [1946] 2 All ER 345 HL Oscar Chess Ltd v Williams [1957] 1 WLR 370 Partridge v Crittenden [1968] 1 WLR 1204 Poussard v Spiers and Pond (1876) 1 QBD 410 Routledge v Mackay [1954] 1 WLR 615 Rose v Plenty [1976] 1 All ER 97 Smith v Eric S. Bush [1989]2 WLR 790 Smith v Leech Brain & Co [1962] 2 QB 405 Twine v Bean’s Express Ltd [1946] 1 All ER 202 Read More