Business and Company Law - Essay Example

Business and company law In the English legal system, common law is that law which is developed through court decisions. The law isdeveloped by judges through case law. Common law relies on the doctrine of precedent in deciding cases. The rationale for the use of precedence in common law is that it is unfair to treat similar facts in different ways in different occasions. Equity, on the other hand, is a set of principles that work to supplement rules that would otherwise work harshly. Equity mitigates the harshness of common law and allows the court to use discretion in the application of justice. The main difference between common law and equity is that remedies in equity are discretionary while remedies in common law are available as rights. Another difference is that while common law rights act in rem equitable rights act in personam. Equity provides remedies where remedies are not provided by common law, or provides better remedies than those provided by common law (McKendrick, 2005). The general rule in contract law is that part payment of a debt does not constitute valid consideration for the full sum. This rule was developed in Pinnels case (1602) 5. The court in this case established that part payment cannot be good consideration unless such payment is made before the due date, or with a chattel, or made to a different person. The decision in this case was affirmed in Foakes v Beer (1884) 9 App. Apart from the exceptions of part payment established in Pinnel, there are common law and equitable exceptions to the rule of part payment of a debt. The common law exception involves part payment by a third party. In this situation part payment is considered good consideration if the payment is made by a third party on condition that the payment is made in full consideration of the debt. In Hirachand Punamchand v Temple (1911) 2 KB 330 a father had made part payment to a money lender in full consideration of his son’s debt. The court held that the payment was valid consideration. The equitable exception to the rule in Pinnel is promissory estoppel. Promissory estoppel was developed in Central London Property Trust Limited v High Trees House Ltd. In this case the court observed that an individual is estopped from going back on a promise to accept part payment in consideration of the whole debt.  Alexandra went into Millennium Art gallery and was interested in a collection of seven paintings by Lowry. The paintings were priced at 550,000. After inspecting the paintings, Alexandra spoke with Charles, the manager, that she was willing to pay 450,000 for the paintings. Charles said he could accept 500,000 and Alexandra proposed 480,000. Charles said he would think about Alexandra’s offer. Alexandra went for lunch and on returning found that the paintings had been sold to Barry. Alexandra offered 500,000 if Charles could buy the paintings back from Barry. Charles bought back the paintings and sold them to Alexandra. When the paintings were delivered Alexandra found out that one was genuine while the rest were good counterfeits (Holmes, 2009).  Offer and acceptance are fundamental elements that are required in the formation of a valid contract. An offer is an expression of willingness by a party to contract. Once an offer is accepted, a valid contract is formed. An offer is made with the intention of creating legal relations, thus an offer is only valid if a reasonable person views the offer as intending to create legal relations as decided in Smith v Hughes (1871) LR 6 QB 597. A counter offer occurs where the offeree responds by making an offer with different terms. In Hyde v Wrench, the court held that a counter offer destroys the initial offer. Acceptance is a promise to accept to be bound by the terms of an offer. For acceptance to be valid, it must be communicated, the terms of the acceptance must be similar to that of the offer and the agreement must be certain (Anson and Guest, 1984).  The discussion between Alexandra and Charles did not constitute valid offer and acceptance. Charles made an offer for 500,000 which was countered by Alexandra’s offer for 450,000. Charles offered to accept 500,000 and Alexandra offered 480,000. This discussion results in negotiations between the parties. Charles agreed to think about the 480,000. This was a valid offer and could only constitute a valid contract if it was accepted by Charles.  Where an offer includes a description of the goods, there is an implied term that the goods will conform to the description as provided for by section 13 (1) of the Sale of Goods Act 1979.  This condition is applicable where the goods are sold solely by description. If the buyer sees the goods, then the implied term does not apply. In Harlington & Leinster v Cristophe Hall Fine Art (1991) 1 QB 564, the court held that sending experts to inspect the painting meant that the sale was no longer by description and section 13 (1) could not apply. In Alexandra’s case the sale was made after Alexandra had seen the paintings, therefore, section 13 (1) does not apply.  Apart from the requirement of offer and acceptance, other elements of a valid contract are intention to create legal relations and consideration. Intention to create legal relations follows that party to a contract must agree to be legally bound by the terms of the contract. If there is no intention to create legal relations, then the contract cannot be valid. In establishing whether parties intend to create legal relations, courts apply the objective test applied in Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256. In this case the court inquired whether a reasonable by stander would consider the parties as intending to create legal relations. Consideration, on the other hand, is a thing of value that is given in exchange for the promise of the other party. Consideration can take the form of payment although an act or forbearance can be sufficient consideration. Consideration need not be adequate but must be sufficient. Sufficiency of consideration requires that consideration meets the test of law and must not be equivalent. Consideration should also be part of the contract and should be past consideration as decided in Stilk v Myrick (1809) 170 ER 1168. In the case of Barry and Charles, a valid contract arose after the two parties intended that the contract would be binding. Additionally, consideration was given when Barry paid 490,000 for the paintings.  The statements that are made in negotiating contracts can either be terms or representations. It is important to distinguish between contractual terms and representations as this affects the remedies available for breach. A breach of contractual term gives a remedy for breach of contract. A breach of a representation gives rise to a claim for misrepresentation. In order to determine whether a statement is a term or a representation, it is essential to consider whether it is included in a written contract. A term that is included in a written contract is a contractual term while those which are not included are representations. The rule applied here is the Parole evidence rule. Relative knowledge is also important in this distinction. A statement made by an individual with expert knowledge of the subject constitutes a term. Reliance must also be established. If a party relies on the statement to enter into the contract the statement becomes a term. Where a party indicates the importance of a statement to the other party that statement becomes a term as held in Bannerman v White (1861) 10 CBNS 844. Timing is also important in determining whether a statement is a term or a representation. If a statement immediately precedes a contract the statement becomes a term. In Routledge v McKay (1954) 1 WLR 615 the court held that the statement was a representation since there was a lapse of time after making the statement and entering into the contract (Cormack, 2007).  When there is breach of contract, there are specific remedies that are available to the aggrieved party. Remedies available for breach of contract can either be common law remedies or equitable remedies. Common law remedies are money damages paid for breach of contract. These damages include compensatory damages, restitution, punitive damages, nominal damages, liquidated damages and quantum meruit. Compensatory damages are awarded in the equivalent of the money which will allow the injured party to acquire what was promised somewhere else. Restitution compels the party who breached the contract to pay back the aggrieved party. Punitive damages are intended to punish the party who breached the contract. Nominal damages are damages that are awarded where there has been a breach but no loss resulted from the breach. Liquidated damages are damages that the parties had agreed to pay in case of a breach. Quantum meruit is an award to a party as compensation for work performed before the breach occurred. Remedies that are available for breach of contract in equity include cancellation and specific performance. Cancellation involves cancelling the contract and releasing the parties from their obligations. Specific performance is where a court forces the party who breached the contract to perform their duty under the contract (Beale and Tallon, 2002).  Cases Bannerman v White (1861) 10 CBNS 844 Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 Central London Property Trust Ltd. v High Trees House Ltd. (1947) 1 KB 130 Foakes v Beer (1884) 9 App  Harlington & Leinster v Cristophe Hall Fine Art (1991) 1 QB 564 Hirachand Punamchand v Temple (1911) 2 KB 330 Hyde v Wrench (1840) 49 ER 132 Pinells Case (1602) 5 Routledge v Mckay (1954) 1 WLR 615 Smith v Hughes (1871) LR 6 QB 597 Stilk v Myrick (1809) 170 ER 1168 Bibliography Anson, W. and Guest, A. (1984). Ansons Law of contract. Oxford [Oxfordshire]: Clarendon Press. Beale, H. and Tallon, D. (2002). Contract law. Oxford [England]: Hart Pub. Cormack, B. (2007). A power to do justice. Chicago: University of Chicago Press. Holmes, O. (2009). The common law. Cambridge, Mass.: Belknap Press of Harvard University Press. McKendrick, E. (2005). Contract law. Oxford [England]: Oxford University Press. Read More