Variety of Business Contracts - Case Study Example

Case LO1a: Types of business agreements or contracts As a businesswoman, Katie needs to know the basic principles of business agreements and contracts become she binds herself to any business agreements. Business agreement or contract establishes the agreement between parties whereby the parties fix their rights and duties in accordance with their agreed terms. Contracts are classified according to their nature and binding effects on the parties and upon third persons (Rose, 2009). The most common types of contracts are contracts under seal, express contracts, implied contracts, bilateral and unilateral contracts, contracts of adhesion and aleatory contracts (Burrows, A. (2009). One of the oldest forms of business contracts in are the contracts under seal (Burrows, 2009). These types of contracts are traditionally enforceable legal document that are stamped with a seal. This act of putting a seal on the agreement acts as the solemn acceptable of the parties of the terms and conditions of the agreement, thus, this type of contract does not need a consideration for it to be valid (Burrows, 2009). This type of contract is seldom used in our present times and transactions used to be done under seal are now covered under implied contracts. Implied contracts arises from the mutual agreement are promises of the parties that have not been put expressly in writing (Burrows, 2009). What makes this type of contact binding is the intent of the parties to honor the unwritten obligations. The existence of an implied contract rely on the substance of its existence thus the acts or conducts of the parties that are to be bound by this contract determines its validity and enforceability. Since the parties commit and bind themselves to honor the implied agreement, this type of agreement has the same affects as the express contact (Burrows, 2009). Under the express contact, the parties express stipulates their agreements through either in oral or written forms. For an express contract to be considered valid the offeror must make his or her offer expressly and such offer must be expressly accepted by the offeree (Burrows, 2009). The general rule here is that for a contract to be valid, there must be a valid offer, the offer must be accepted, the contract must involve a legal consideration, the parties must have the capacity to enter into a contract and the contract must comply with the formalities of law (Kendrick, 2008). If these conditions are met, the contact is said to be valid. According to the court in the case of Smith v. Hughes1, the acceptance of the offer must be conveyed to the offeror for it to be valid. For a consideration to be valid, the court said in the case of Eastwood v Kenyon2 that consideration must not come from the past and in Foakes v. Beer3 and in the case of Collier v. P & MJ Wright (Holdings) Ltd4, the court said that a smaller consideration cannot validly satisfy a bigger debt. This can only mean that for a consideration to be considered as valid, it must be reasonable and equitable to the parties involved. The rules governing express contacts also holds true in the case of bilateral and unilateral contacts, contracts of adhesion, aleatory contracts and others (Kendrick, 2008). Bilateral contacts are created when two parties promise to perform or deliver something for a consideration. For this type of contract to be considered as legally constituted, the promise that the person makes must constitute as a sufficient consideration for the promise made by the other party (Kendrick, 2008). On the other hand, the unilateral contract is created when one of the parties promise to perform or deliver something if the other party performs a requested act (Kendrick, 2008). In this case, the performance of the requested act is considered as the act of acceptable which perfects the execution of the contract. Unlike the bilateral contract where both of the parties are bound to perform an act or deliver something, in the unilateral contract, only one party is bound to the agreement. This means that the other party does not have a contractual obligation to performs the act requested and the other party may not compel him or her to perform the act requested. What is really important here is that the party who is bound by the contract should deliver what he or she promised if and when the other party performs the act requested. When it comes to contracts of adhesion, this type of contract is formed when a party with a greater bargaining power drafts the provisions of the contract and giving only the weaker party the opportunity to adhere or to accept the provisions of the agreement (Burrows, 2009). This type of contract is usually used by most businesses since it is time consuming to negotiate all types of contracts. However, since this type of contract reflects only the will of one party, Courts are often reluctant to enforce this type of contract especially when the provisions thereof are mostly disadvantageous to the other parties (Burrows, 2009). While the contract of adhesion is biased towards the parties with stronger bargaining power, the aleatory contract is a mutual agreement entered into by the parties whereby all the parties assume certain degree of risks (Burrows, 2009). A good example of an aleatory contract is a contract of insurance where the parties assume different degrees of risks. Case 2: LO1 b,c,d 1. Effect of George’s Letter to Eric George’s letter to Eric constitutes an offer whereby George expressed the terms that he is willing to be bound. According to the count in the case of Smith v. Hughes5, the important thing when it comes to making an offer is the reasonableness of the situation and where the situation proves to be reasonable, the offer is said to be valid. In our case, George is an antic dealing and Eric is a well-known collector. The parties have entered into a sales transaction before so we can safely assume that the parties are already familiar with the procedures of offer and acceptance in contracts. Given the fact that the offer was made by George in line with his business, said offer can be viewed as valid. The act of George of offering to Eric to sell the clock must be differentiated with the decisions of the court in the case of Harvey v Facey6 where the seller said that she might be interested in selling the property at a certain price. Note that in the case of Harvey v Facey7, the selling did not make a very categorical statement to sell the property to the buyer but rather left the option to sell the property to another person if the price is right. What the happened in the case of Harvey v Facey8 was that the offeror merely made an invitation to treat and not to sell, unlike in the case of George and Eric where George expressly offered to sell to Eric, a collector, the antique clock. 2. Stipulation of Time The stipulation of time in this case can be construed as a limitation in the offer whereby the offeree must accept or reject the offer with the time stipulated. The failure of the offeree to communicate his acceptance within the stipulated time will release the offeror from his obligation to honor the stipulations of the offer. In the case of George and Eric, George said that he will wait until the closing of business on Friday for the acceptance of Eric and if Eric makes his acceptance with the time stipulated, he will sell the clock to Eric at a special price. Clearly, the stipulation of time in this case is connected to the price of the clock. If Eric confirm with the stipulated time that he is indeed going to buy the clock, eh can enjoy the special price. On the other hand, if he does not accept the offer of George within the stipulated time, George has the option to sell the clock at a higher price. 3. Significance of the posting of the letter According to the court in the case of Adams v Lindsell9, the offer is deemed accepted at the moment when the letter of acceptance was accepted by the post. Based on the decision of this case, the date of the posting of the letter by Eric is deemed as the date of acceptance. In the case of Henthorn v Fraser10, the court said that the postal acceptance will only be valid at the time of posting if the parties reasonable expect the acceptance to be through post. In the case of Eric and George, the offer was made by George through a letter, presumably posted through the local post office. Since the offer letter was posted, we can safety say that a posted reply is reasonable in this case. Since a posted reply is a reasonable response to a posted offer, it is only logical to consider the posted acceptance to be valid. 4. Revocation through the answering machine Revoking a written acceptance through a verbal message may be valid if such revocation was communicated to the offeror and that the offeror was able to receive the message properly. However, in the case of Eric and George, the revocation of the acceptance was not duly received by George so there can be no proper revocation of the acceptance. Note that in the case of Henthorn v Fraser11, the court ruled that when the acceptance was done through post and the offeree later on changed his or her mind and revoke the acceptance, he or she must properly communicate such revocation. The act of revoking the acceptance however may not affect the right of the offeror to compel the offeree to honor the contract. Note that when the offeree accepted the offer, the contract to sell was deemed perfected. As it is, the parties are now bound to honor their commitments to each other. The failure of the parties to honor the stipulations of the contract to sell in this case will constitute an actionable breach of contract. 5. Date of Acceptance On the question as to which communication should be honored by the parties in this case, the first communication which was posted should be considered as the official communication of the offeree’s intent. As stated by the Court in the case of Henthorn v Fraser12, where the letter of acceptance was posted, the date of posting of that letter should be considered as the date of acceptance. According to the Court in this case, it does not matter if the offeror received the letter before the offeree revoked it, what is important is the date of posting. Since Eric accepted the offer of George through posts, he is now bound to honor that acceptance. Besides, the call that he made to George was not received by George on time so that call does not have any bearing to the case at bar. Note that in order for an acceptance or revocation to be binding to the parties, such acceptance or revocation must be duly received by the proper parties. The fact that the recorded message left by Eric did not reach George only reinforce the fact that the contract to sell between the parties has already been perfected and was not revoked in any legal means possible. Case 3: LO2 1. Obligations of X Garages Ltd The parties to a contract are bound by the stipulations of the contract and the non-fulfillment of the obligations stipulated in the contract constitutes an actionable breach of contract. In the case at bar, the contract signed by the parties clearly stipulated that the warrantee is enforceable within three months of purchase or for 5,000 miles which happens first. Since the engine of the car seized up four months after the contract date, X Garages Ltd is no longer liable to provide free service to the doctor. 2. Application of Sale of Goods Act 1979 Although the Sale of Goods Act 1979 gives the buyer the right to compel the seller to repair defective goods or reduce its purchase price, this does not mean that these rights are absolute and demandable at all times. According to the provisions of the Sale of Goods Act 1979, Part 5A section 48B, the buyer may not compel the seller to repair or replace the good if the remedy in impossible, unreasonable or disproportionate to other remedies and to the purchase price of the good. In the case at bar, the second hand-four wheel drive all-terrain vehicle bought by the doctor came with a warrantee for hidden defects within a span or three months or until such time when the mileage of the car reaches 5000 whichever comes first. The fact that the car broke down four months after it was purchased, the buyer may not compel the seller to repair the car since such requests would no longer be reasonable based on the stipulations of the contract of sale between the parties. However, if the buyer can prove that the seller indeed made mispresentations when selling the car, he or she may be able to recover damages from the selling. Note that in our case, the true mileage of the 18 month old car was already 100,000 miles and if the seller did not inform the buyer about this fact but passed on the car as a low mileage vehicle, the buyer can go after the seller for misrepresentation of goods under the Sale of Goods Act 1979. 3. Inclusion in the Warrantee Clause Under the Sale of Goods Act 1979, the seller may include a warrantee clause on the goods sold. For this warrantee clause to be valid, such clause must be reasonable and the seller must disclose fully the true conditions of the goods sold. In case the goods do not match the description given by the seller, the buyer has the remedy to file action for breach of guarantee or warranty under Part IV of the Sale of Goods Act 1979. In the case at bar, if X Garages Ltd did not disclose the true conditions of the car, it can be held liable for breach of guarantee. Bibliography Books 1. Burrows, A. (2009) A Casebook on Contract - Second Edition (Paperback) Hart Publishing; 2nd Revised edition 2. Kendrick, E. (2008) Contract Law: Text, Cases, & MaterialsLearn about Author Central OUP Oxford 3. Rose F. (2009) ed. Blackstones Statutes on Contract, Tort and Restitution 2009-2010 (Blackstones Statute Series) OUP Oxford; 20th edition Table of Cases 1. Adams v Lindsell (1818) 106 ER 250) 2. Collier v. P & MJ Wright (Holdings) Ltd [2007] E.W.C.A. Civ. 1329. For commentary, see R. Austen-Baker (2008) 71 Modern Law Review 611 3. Eastwood v Kenyon 1840], 11 Ad. & E. 438, 113 E.R. 482 (Q.B) 4. Foakes v. Beer (1883) L.R. 9 App. Cas. 605 5. Harvey v Facey [1893] A.C. 552 6. Henthorn v Fraser [1892] 2 Ch 27 7. Smith v. Hughes (1870-71) LR 6 QB 597 8. Smith v. Hughes (1870-71) LR 6 QB 597 Online Sources 1. Sale of Goods Act 1979 retrieved 1 April 2010 http://www.statutelaw.gov.uk/content.aspx?LegType=All+Legislation&searchEnacted=0&extentMatchOnly=0&confersPower=0&blanketAmendment=0&sortAlpha=0&PageNumber=0&NavFrom=0&parentActiveTextDocId=1837068&ActiveTextDocId=1837157&filesize=3423 Read More