Faculty of Business Environment and Society - Essay Example

?Topic: Faculty of Business Environment and Society Module No 125BSS 11 MODULE Business Management Affairs Contract law is clear in stating the liability of a party who is found to have violated a previous signed agreement, and this liability may extend to damages suffered by the business under the loss of contract. I was recently contracted by the TV show “You’re Hired” to serve as a Business Affairs advisor on the legal aspects of the contract the director Simon intended to sign with Davina, a well known TV presenter. In advising the studio in this manner, I was asked directly by Simon to explain the requirements and contents of a legally binding agreement and how to protect the studio’s interest with the star. I began by explaining to the producer what the requirements and contents of a legally binding agreement actually are, and how they apply specifically to this case. I also gave a general summary of what the show could expect, as per liabilities and legal redress, if the hostess backed out or tried to renege on the deal. The conversation was long and extensive, covering the main points of the legal issues as outlined herein. The first issue I advised Simon on was the need to be careful in what he might assume to be small talk or simple, informal negotiations, because one needed to consider that oral and written contracts are considered to be on the same standing when it comes to law. In order to take this into account, I advised, the director should be explicitly clear with Davina when they were negotiating informally, and in the best case scenario, to have a legal advisor present at all formal negotiations. This is not to say that if the two had drinks together and Simon promised the moon to Davina while under the influence all would be binding, but simply the need to be clear and careful in all communications. At this point, I decided it was a good time to explain that the common law accepted both objective and subjective proofs of legal contract agreements. As Mindy Chen-Wishart explains in Contract Law: “The subjective approach, which favors what a party's actual intention is, regardless of appearances; and The objective approach, which refers to how a reasonable person would interpret a party's intention from his conduct in all the circumstances.” (Chen-Wishart, 2007) Chen-Wishart also quotes Smith vs. Hughes (1871) as the main case law precedent related to the objectivity test, which posits a test of “reasonability” to determine how the average person would interpret a party’s intention in negotiation in forming a contract as decisive. (Chen-Wishart, 2007) When Simon asked how he could make sure he was not bound by informal agreements or understandings when talking with business clients, I reiterated this was the overriding need for keeping legal representation present at all times when officially discussing business terms. While the handshake agreement remains popular in some circles, it is a dangerous way to conduct business in modern times, I concluded, precisely because of the lack of witnesses and clarity of situation involved in private, two-party negotiations. After this, Simon asked exactly what requirements were considered most important to make a contract legally binding for all parties following the initial negotiation. While there is a broad corpus of case law referencing contracts, I replied, the main factors could be considered: 1. “Agreement - where one party makes an offer and the other accepts it; 2. Consideration - where one party gives something in exchange for something from the other party; 3. Intention - where both parties intend to abide by the contract; 4. Capacity - where both parties are mentally capable of understanding a contract; 5. Genuine consent - where both parties agree to the contract of their own free will; and 6. Legality - where all of the parts of the contract are legal.” (Victorian Law Foundation, 2011) The principle of agreement, I said, could be applied to either the verbal or written contract and was based on mutual consent and understanding. It is obvious, I continued, that the agreement is much safer when made with terms clearly stipulated in paper and also when negotiations are made with witnesses on both sides that are considered authoritative and trustworthy. Other than this, I concluded, the contract is very straightforward; two or more parties can agree simply through a handshake or in a complex manner, documented through a complex written document, signed by both parties. Consideration in the context of contract law refers to the fact that there is always some type of content to the agreement. Whether wages or exchange of property or shares in a company, the consideration relates to the main terms of the contract. In this instance, I explained, the consideration would be related to the labour provided by Davina and the monetary compensation provided by “You’re Hired”. If there were to be any fringe benefits, attendants, office stipulations, wardrobe costs, or other special agreements to be made, these should all be enumerated clearly on both sides in order to make a good contract. Nevertheless, the intention of both parties is implied by their agreeing to the terms of the contract. As I told Simon, this intention means that both sides agree to honor the contract for the full term of its stipulated time of duration. Generally speaking, open-ended contracts should be avoided, as sooner or later the parties will tend to grow apart or seek a renegotiation of terms when the balance of interest has shifted away from one party’s advantage. Simon asked whether re-negotiation was acceptable in contract law, and under what type of terms it could be pursued. I answered that re-negotiation was always an option and all that needed to be done to draw up a new contract at anytime replacing the old one for change to occur. If the two parties could not come to terms on re-negotiation, then the old contract would stay in force until its original period of time had ended. If one party re-negotiates terms unilaterally without the consent of the other party to the agreement, then this constitutes a form of breech and can be legally redressed in the courts under the original terms of the contract. Capacity, I said, relates to the original example of two people negotiating in a bar after a few drinks and the question of how to validate a verbal agreement made in such a context. Capacity simply maintains that both parties are of sound mental health at the time the agreement is entered into, and that neither is using deception to hide terms or developments from the other. Simon asked if this meant that children, the mentally ill, and other deranged or immature types of people could not enter into contracts. I replied that this was generally true, that such people would need authorizing agents with power of attorney or legal guardianship in order to represent the interests of non-capable parties in a contract. In that manner, a contract could be made with a minor or non-responsible legal adult, and if Simon were to hire any employees such as child actors under these statutes, he would need to follow such procedures. Genuine consent, I said, goes to more complex issues of deception and manipulation in a contract agreement. The parties must not be tricked or led misleadingly into signing a contract. “But what about the fine print?” Simon asked. I answered that the fine print was indeed part of the contract, and just as valid as the main part. It would be considered the customer or client’s personal responsibility to read all parts of a contract document before signing the agreement. If a person failed to do so, they would still be liable for the terms of the contract, in a similar manner to the way that ignorance of the law is no excuse. Simon acted surprised, and said, “What if the fine print is part of a trick, or hidden from the person?” I said that these instances may be in fact fraud if one party can prove malicious and deceptive intent on the part of the other. This is the importance of genuine consent, I concluded, to verify that all parties do, in fact, enter into the agreement with honesty and integrity with regard to adherence and representation of terms. Finally, I stated, all aspects of the contract must themselves be legal, and cannot go against common law in a civil or criminal code in any way if it is to be considered valid. Simon sighed, and looked away, murmuring something under his breath. Contracts made with regard to illegal activities cannot be verified if the actual terms are against common law, I stated. “Makes sense,” Simon replied. “Is there anything else I should know?” I replied that he certainly should be aware of the different types of damages and liabilities that could be expected to be claimed if either party failed to live up to the agreement as stated in the contract. Broadly, there are two types of damages in contract law: “1. Compensatory Damages Damages compensating a party for the loss of a bargain-the difference between the promised performance and the actual performance. a. Incidental Damages Expenses that are caused directly by a breach of contract (such as those incurred to obtain performance from another source).” (LAMC, 2010) One easy way to avoid misunderstanding from the start, I said, is to include a stipulation determining a fixed amount to be set aside for compensatory damages in the initial contract, or a clause limiting incidental damages in certain instances. This limited liability was related to the way the LLC operates officially, I explained. This troubled Simon, as he was seriously worried that Davina might renege on her contract deal if something better came along at another studio. He wanted to know what type of punitive damages could be expected if Davina reneged completely on the deal. Incidental and compensatory damages, I replied, are related to exactly this type of scenario, but the calculation of damages is more complex and negotiable than the actual establishment of culpability in a contract dispute. A plaintiff in a breach of contract case might genuinely claim the lost amount of revenue, goods, or services that the contract required to be delivered, and be reimbursed for those losses by the defendant following a court decision. Additionally, a breach of contract could lead to further liability related to other costs directly related to the breech, such as the hiring of replacement services or the loss of revenue from the cancellation. Simon then wanted to know how he could claim a contract violation if Davina were to fail to uphold the terms of the agreement. I stated that one important aspect to consider was the actual jurisdiction of the court. For example, if Davina was coming from Los Angeles and an American citizen and Simon was based in London and an English citizen, then the contract should state clearly that the jurisdiction for any disputes is in England. Another aspect to consider, I said, is establishing binding arbitration or mediation as a solution for solving any future disputes. That aspect could also be included in part of the contract as a mutually agreed upon, extra-legal method of solving contract disputes. Simon asked what would be done if binding arbitration or mediation failed, and I replied that the contract would then be tried by a judge in civil court. I said that the benefits of avoiding publicity in this instance may make arbitration or mediation a viable option for the contract with Davina should the agreement fail to stand up over time. Finally, Simon inquired if there were any specific cases related to entertainment law that had been decided with regard to contract agreements that were considered extraordinary or with their own tradition of legal precedent. I stated that contract law was very efficient and consistent across sectors, but that entertainment law did have some unique aspects to its contracts that are often called into re-negotiation through the courts. I quoted him a standard summary of the situation: “Litigation over personal service agreements is common in the entertainment industry. Often, an artist who is relatively unknown is willing to enter into an agreement that drastically favors the company with which he or she is signing. Once the artist achieves success and sees the profits that the company is making from his or her services, the artist may demand higher fees or ROYALTIES, or to be released from the contract. Conflicts such as this often end up in court, where companies often demand that the court order that the artist not perform for anyone else while the contract is in dispute. (This type of order is known as a negative injunction.) Whether the contract will be enforced and the artist required to perform under the agreement is usually determined by whether the contract meets certain legal requirements based on the state laws that govern it.” (Jrank, 2011) Simon replied that this was exactly the type of situation that he was trying to avoid with Davina, and inquired as to whether I had any opinions as to how to prevent such a legal case from arising. I replied that flexible terms based on performance might be an option, to agree in advance to pay a higher percentage of profits based upon verifiable criteria of performance or ratings. While this may be hard to judge objectively, another manner to keep the situation managed outside of the courts would be an option-based contract with revolving terms based on the show’s overall performance or improvement in ratings over the previous year. A third way would be to agree in advance to settle any contract disputes through mediation in advance, as part of the main agreement. Arbitration would guarantee that the dispute would stay out of the courts, but could but guarantee the company’s position as an option-based contract or performance-rated agreement would. To summarize, I told Simon that the contract could be considered an agreement made between two or more parties either formally via a written document or orally, as in a handshake agreement. These contracts could be viewed subjectively, from the point of view of those who entered into the agreements, or objectively in the manner a common citizen might reasonably interpret the agreement if reading it independently. In most instances, the question of “reasonability” is considered to be a key point in validating a contract, but this does not automatically exclude unfavorable contracts from being valid. There needs to be an active deception or intent to conceal information in order for fraud to be present. I mentioned agreement, conditionality, intention, and other factors that the courts have based their precedents upon in interpreting case law. I discussed the two types of damages with Simon, and also advised him about jurisdiction as it related to international agreements, mediation, and binding arbitration as settlement and re-negotiation options. I also suggested some practical tips in negotiating the contract and writing its terms that would keep the process transparent and also value each interest equally. At that point Simon thanked me for my time and mentioned that he needed to attend to other business, and we parted for the day to meet again another time. Sources Cited: Chen-Wishart, Mindy (2007), Contract Law, Cambridge: Oxford University Press, 2007, Web, viewed 10 January 2011, . Jrank (2011), Entertainment Law - Contracts, Net Industries and its Licensors, Web, viewed 10 January 2011, . LAMC (2011), Contracts Chapter 20 Breach of Contract & Remedies, Paralegal Studies Program, Los Angeles Mission College, Web, viewed 10 January 2011, . VLF (2011), Requirements for a contract to be legally binding, Rural Law, Victoria Law Foundation, Web, viewed 10 January 2011, . Read More