Business Law: Nature of Contracts and Breach of Contracts - Coursework Example

?BUSINESS LAW ASSIGNMENT Question To what extent is it true that in the event of a breach of contract, the injured party can recover compensation for all of the consequences, both financial and non-financial that result from the breach. In the analysis of this question, there are four main issues that need to be addressed to identify the solution to this question. They are: 1. Nature of contracts 2. Breach of contracts 3. Damages for the breach of contracts 4. Limitations. Nature of Contracts The first issue is about the nature of contracts that give rise to rights and responsibilities that enables one party to sue to recover damages in case the other party does not fulfil its part of the contract. A contract is defined as an agreement made with an intention to create legal relationship between two parties in order to exchange some form of consideration (Uher & Davenport, 2009). Basically, in English Law for a contract to be initiated, there should be an offer and an acceptance. Both the offer and acceptable must give rise to the exchange of consideration under terms that are clearly spelt out in clear terms (Young, 2010). Also, both parties must have the legal capacity to contract (be over 18 years old and be of a sound and uninfluenced mind). And the consideration to be exchanged should be legal in the law. Additionally, there should be an intention to create a legal relationship. In Smith V Hughes [1871] 40 LJQB J221 it was seen that the intention to create legal relationship can either be expressed or implied when one partie conducts himself in a way that the other might reasonably imply to mean an intention to create a legal relationship hence a contract. Consideration is an important requirement in English Law. A consideration is at thing of value, that a person exchanges for another thing of value in a contract. Treitel, (1988) bases on this and states that a contract gives rise to rights and responsibilities for each party in a contract. In other words, a person has the responsibility to discharge his duty under a contract and also gets the right to certain benefits that is to be transmitted from the other party. It is therefore conclusive, that every party in a contract has a responsibility and this responsibility must be fully discharged fully according to the terms of the contract. Breach of Contracts “A contract is breached if one party introduces a fundamental change which is unacceptable to the other party.” Morris et al (2007). In practice, when a person fails to do as promised in a term of a given contract, there is a breach of contract. In Johnson V Agnew [1980], there was the failure of one party to discharge what was promised in the contract. This led to a breach of contract which was due to the failure of one party to discharge his responsibility as promised and according to the terms of the contract. In effect, the other party’s rights accrued under the contract were limited because after discharging his responsibility, the other party failed to give him the consideration due to him. Obviously, this led the aggrieved party to suffer several hardships which would not have occurred if the other party had discharged his duty as promised. In such a case, the aggrieved party can go to court and seek some kind of restitution. In such a situation, the court will decide on a remedy for the aggrieved party based on the facts of the case and pass a judgement on the case (Morris et al, 2007) Damages for the Breach of Contract The usual remedy under English commercial law for a breach of commercial contract is an award of damages (Whincup, 2006). This therefore means that in most cases, where some kind of damages can be awarded to an aggrieved party in a contract to restore him to his former position, the court will normally grant that. In Robinson V Harman 1848 Ex Rep 850, the landmark ruling was that “where a party sustains a loss by reason of a breach of contract, he is so far as money can do it, to be placed in the same situation ...as if the contract had been performed”. This therefore means that when a party to a contract breaches it, the other party can have access to financial damages if it can restore him to his former position as if the contract in itself, was performed. In giving damages, claimants should be compensated no more than the loss they suffered from the breach (Keziol & Wilcox, 2009). This therefore means that the court can give damages to a given person in areas like financial loss, damaged property, personal injury and even happiness or leisure loss. In Jarris V Swans Tour Limited (1973), a person was given damages for the failure of a tourist company to take him to his destination for holidays. The judge stated that losing the opportunity to travel constituted the breach of a contract that led to the loss of leisure and holiday time on the part of the claimant and hence he was liable to claim damages. Also, in the case of Ruxle Electronics & Construction Limited V Forsyth [1995] UKHL 8, it was held that a claimant in a breach of contract case could choose between the award of damages for the cost of repairing a defect and damages for the loss of amenities. There are two main forms of damages in law: liquidated damages and unliquidated damages. Liquidated damages, are damages that are attributable to financial consequences. Unliquidated damages go to restore a person to his or her former position (Kouladis, 2006). In Cellulose Acetate Silk Co. Ltd V Widnes Foundry Ltd [1933] AC 20, a group of builders entered a contract to complete a building for the clients by a given date and in default, pay a penalty of ?20 each day till completion. The builders delayed for a number of days and the court held that they pay the clients ?20 for each day as agreed. This is a form of liquidated damage. Unliquidated damage usually comes about when money cannot be used to pay for the loss. Usually, aggrieved parties in contracts go to court for two forms of orders (Holdsworth et al, 1999). The first is the order for specific performance and this is where liquidated damages are not sufficient to replace the loss. In Cohen V Roche (1927), the claimant sought an order for specific performance because the consideration involved was a rare antiquity that could not be acquired on the general market. The second form of unliquidated damages is the injunction, which involves an order from the court ordering a party of the contract to desist from a conduct or perform a specific act. In Warner Bros V Nelson [1937], an actress had signed a contract with a production house to perform only for the production house. However, she attempted to perform for another production house and the claimant went to court for an injunction which was granted. In other cases, the court might award punitive damages where the claimant was taken advantage of. In Campbell V MGN Ltd, a breach of contract also led to the victimisation of the other party in a way that was punishable by law. Also, a court might grant a quantum meruit when a claimant is prevented from completing his side of the bargain by the defendant’s conduct or repudiation (Marsh & Soulsby, J, 2008). In Planche V Colburn [1831], a writer was given a contract to complete a project. He did the research and began work on the project however, the employers repudiated the contract and the writer took the matter to court. He was awarded 50% of the pay because he had completed the project to a point. Limitations Basically, for a person to be awarded damages, he needs to prove that the breach of contract affected him in a given way in order to claim damages on that ground. In White Arrow Express Ltd V Laney’s Distribution Ltd [1996] Trading Law Report 69, the judge stated that “if a claimant cannot show that the breach has affected his financial position, he will recover nominal damages only”. In Farley V Skinner [2001] UKHL 49, a person who bought a property hired a surveyor to assess the impact of aircraft noise on the house. The surveyor negligently stated that the property is not seriously affected by aircraft noise. However, property buyer noticed that the noise was unbearable and he sued for damages from the surveyor. The court held that since there were no financial losses suffered by the claimant, no financial damages could be awarded to him. Also, damages should have occurred naturally according to the usual course of affairs. In Horne V Midland Railway (1873) showed that delays caused by a messenger led to him paying only a nominal price and not for profit lost. However, where the losses can be reasonably contemplated by both parties, the one who breaches the contract will have to pay full damages (Hermon II, 1969) Question 2 Advise to the Human Resource Manager of a Local Business that wishes to take additional staff to carry out a variety of roles within the business, some of which will require the individual to work from home. The business is only prepared to take on the additional staff on the basis that they are self employed rather than employees. The proposition of the human resource manager seems to be one that suggests that the workers to be employed will become independent contractors rather than employees of the business. As independent contractors, they act as self employed individuals who work on their own and are contracted by the business to carry out aspects of business in the organisation. Employment Rights Act 1996 states that as employees, the people will first of all need to have some kind of contract with the business. This contract can either be a contract of service, contact of apprenticeship, service of the crown or an office that has a perpetual existence. In Fall V Hitchen [1972], it is clear that for a person to be considered an employee, he needs to be involved in a contract of employment. Also, in Edwards V Clinch [1981] STI, when a person is in an office that does not change with the holder, he is considered to be an employee rather than a self-employed. The Employees Rights Act 1996 therefore lays down the rights and responsibilities of employees in terms of dismissal and job security. The Minimum Wage Act 1998 also guarantees employees the right to a legally accepted minimum wage. If the business wants to hire the new set of workers as self-employed individuals rather than employed people, then they need to ensure that the contract of engagement states clearly that they will be independent contractors and not employees. This way, the Employment Relations Act 1999 will not guarantee them the rights to be treated as employees and give them privileges that other employees have on the job market. Also, the will be free to work as and when they feel like and will not be bound by the Working Time Regulations Act of 1998. Independent contractors consist of independent contractors, consultants and freelance workers (Newmark, 2000). So the new staff could be hired as independent contractors to enable them to work from home and at their own pace. There will be some differences between the independent contractors who will be acting as self-employed and the in-house staff who will be working as employed. First of all, the employed will be working for the company as fulltime staff. They will be given tasks and assignments and guidance and they will use tools and resources given to them by their employers. Secondly, the employed will not be liable for any loss suffered by the business and as such, they will not be entitled to any gains that the business makes. On the other hand, independent contractors, as self-employed personnel will always have to be on their own. They will decide when and how to work for the company. They will have to provide their own tools and find guidance for the completion of projects. Self-employed persons are responsible for their own successes and failures and as such will not be a burden to the organisation financially. For the purposes of taxation, the self-employed independent contractor will have to be taxed on the basis of being a trader and not an employee. For the purposes of taxation, trading is “a venture in the nature of a trade” (ITA 2007 s989) (James, 2008) They will have to fulfil the Royal Commission on Taxation & Profits’ badges of trade before their income is taxed as self-employed (Rowes, 2005). First of all the subject matter of the realization (Rutledge V CIR 1929 14 TC) and this is concerned about the substance of the transaction in question. In this case, if the independent contractors keep on doing the same business for the organisation, then they are liable to taxation as self-employed individuals in trade rather than employed persons. Secondly, from Taylor V Good [1974] the period of ownership of the item at hand will determine whether it was a trade or not. In this case, the period of doing this business indicates that the people hired as independent contractors are more of traders and not employees. Leach V Pogson [1962] 40 TC 585 shows that the frequency or the number of transactions determines whether a person is trading or not. Since the independent contractors will be doing repeated transactions for the company, they will be considered as traders and taxed as self employed rather than investors or another category of tax persons. Supplementary work on or in connection with the property realised is also a major factor. In this scenario, we examine the additional work or value added to the organisation by these independent contractors. This seems to show that the independent contractors will be adding value to the business by providing their own resources so they should be seen as traders rather than employees. The circumstances and motive of the transaction also suggest that if the workers are hired as independent contractors, they will be seen as external parties rendering a service to the business rather than people working as employees for the business. From the case of Martin V Lowry 1926 IITC, it was held that transactions completed in a given year are considered gains that are taxable. This means that the independent contractors can be seen as taxable persons because their work is completed in less than a year. In conclusion, there could be several features of the activities of people hired by a business that will determine whether they are employed or self-employed. This includes the contract, conditions of service and badges of trade. References Holdsworth William, Searle Goodhart, Arthur Lehman, Hanbury Harold Greville (1999) Essays in Law & History Oxford: Clarendon Press. James, Malcolm (2008) Taxation of Small Businesses London: Spiramus Press Ltd Keziol Helmut, Wilcox Vanessa (2009) Punitive Damages: Common Law & Civil Law Perspectives Vienna: Springer-Verlag. Kouladis, Nicholas (2006) Principle of Law Relating to International Trade NY: Springer Science Marsh, S. B. & Soulsby, J (2002) Business Law Cheltenham: Nelson Thomas Ltd. Morris Glynis D., McKay Sonia, Oates Andrea (2007) Financial Director’s Handbook Oxford: Elsevier Newmark, David (2000) On the Job: Is Long-Term Employment a Thing of the Past? New York: Russell Sage Foundation Rowes, Peter (2005) Taxation & Self-Assessment: Incorporating the 2004 Finance Act London: Thomson Learning Treitel, G. H. (1988) Remedies for Breach of Contract: A Comparative Account London: Claredon Press Uher, Thomas, E & Davenport, Philip (2009) Fundamentals of Building Contract Management University of New South Wales Press Ltd Whincup, Michael (2006) Contract Law & Practice: The English Legal System with Scottish, Commonwealth & Continental Comparison The Netherlands: Kluwer Law International Young Max (2010) Contract Law: The Basics Abingdon: Oxon Routledge-Cavendish. Read More