Aspects of contract and business law

Categories: Business Business Law

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Identify the legal criteria for offer and acceptance in a valid contract

A contract is defined as a legally binding agreement and are very important in business. This is because: * it is risky to enter into a business arrangement without some form of contract * this is because, in the event of something not going as planned, a business contract is your safety net * without a business contract that stipulates the procedures, policies and expectations of the concerned parties, it is also likely that a dispute will arise in the course of the transactions * a broken contract can result in a law suit or an out of court settlement and the payment of damages caused by the breech of contract

There are many different types of contracts.

The main elements needed for a standard contract are:
- Offer
- Acceptance
- Capacity
- Consideration

Offer And Acceptance

Offer

An offer is a definite promise made by an offeror to an offeree about the agreement made.

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They make this promise with the intention that it shall become binding or legally enforceable as soon as it accepted by the person receiving the offer (the offeree).

Acceptance

A valid offer must be accepted by the offeree to the contract.

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In normal circumstances, acceptance of the offer must be communicated to the person making the offer, (the offeror). Acceptance of an offer must be in the form specified in the offer. This can be both written or oral. An example of an offer and acceptance would be:

A vending machine. The machine is offering you the items and you are choosing whether to accept the offer by putting your money into the machine to purchase the item.

A person going into a shop to purchase an item, they would pick up the item and take it to the till to pay. When the customer, the offeror, hands the shop keeper the money they are making an offer, as soon as the shop keeper, the offeree, accepts the money they are showing acceptance. Sometimes the situation can just be as simple as this and no words have to be spoken.

Invitation to treat

There is a big difference between an offer and acceptance and an invitation to treat. An invitation to treat is an indication that a person is prepared to receive offers from another person. In this sense, 'treat' means to 'trade' or 'to do business'. The person who is available to receive an invitation to treat can accept or reject the offer until the final moment of acceptance.

An example of invitation to treat would be:

- Goods displayed, with a price ticket attached, in a shop window or supermarket; the customer can make an offer to buy the product, this can then be accepted or rejected by the seller up to the point of sale. - Products advertised in catalog, brochures, Internet etc, even if the word offer is used by sellers to promote their goods.

An offer must be distinguished from an invitation to treat.

Carlill vs carbolic smoke ball company (1892)

The carbolic smoke company placed an advertisement in newspaper to tell people of their new flu remedy. The advertisement stated that it would pay £100 to anyone who took the remedy for 14 days but still got the flu. Mrs carlill used the remedy but unfortunately still got the flu, and made a claim against the company for the money. But the smoke ball company refused to pay the money. The company tried to claim that the advertisement was an attempt to make an offer to the whole world which meant communication of it was impossible. Normally an advertisement in the newspaper or on television etc, would be an invitation to treat, but in this case as the company had actually gone out of their way to put money into the bank they lost the argument, and it made it an offer and acceptance. The company had made an offer to the whole world and mrs carlill choose to accept their offer meaning they had to pay her as a contract had been made.

Counter offers

Counters offers are offers that are made and then gone back on and adjusted. As soon as a counter offer is made it voids the original contract. For example, if I want to buy a car and the offeror offers it to me for £5000 and I choose not to accept as it is too high, but then to counter offer by offering them a lower price for it and then the original offeror chooses not to accept my offer, and I then say okay I will pay £5000 and then they say no sorry, you can have it for £5500. This is a counter offer, as I rejected the original offer and then by counter offering I made the original offer void, and then they can make a new offer.

Task two (p2)

Explain the law in relation to the formation of a contract in a given situation

A contract comes in to existence when the offer that has been made by the offeror is accepted by the offeree. Contracts can be written or verbal/oral. A verbal contract is when two parties agree through the spoken word and therefore bound by a verbal agreement. This is often done between friends or business people that know each other well enough to agree to be bound legally on a spoken word or a hand shake. An example of this could be, 'I will wash your car for ten pounds', 'okay thank you very much'.

Written contracts are much more common in the work place. It is much easier and simpler for people to be bound by the terms of a written contract, where the details of the contract are included in a document signed by each party, (the offeree and the offeror). These can range from relatively simple agreements to much more formal contracts signed by the parties. Some examples of these could be, the sale of land, regulated credit and hi agreements and employment. Sometimes, a written contract can be much more beneficial and could be a lot safer to use, some examples why are: * A well written, clear, concise contract can avoid customer disputes and complaints.

The contract should make clear both parties rights and regulations and obligations. * The subject matter can be easier to understand in a written contract. * Written contracts can specify delivery times, deadlines etc. * It is easier to put down the payments terms in a written document. * A written contract can provide alternative methods for the settlement of certain disputes. Also there is standard form contracts.

Consideration

Under contract law, the agreement between the parties will not in itself create a legally binding contract. There must be some degree of consideration between the parties for a valid contract to take place. Consideration is what one party to a contract will get from the other party in return for performing contract obligations. A contract is based on the exchange of promises. Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffer a detriment. This benefit or detriment is referred to as consideration. Consideration must be something of value in the eyes of the law. - This excludes promises of love and affection, gaming and betting etc. A one sided promise which is not supported by consideration is a gift. The law does not enforce gifts unless they are made by deed. An example of this would be,

An event organiser promises to pay a band £1000 if they sing at an event. The consideration for the event organisers promise would be to pay band if they promise to play at an event. The consideration for the bands promise to play at the event is the event organiser to pay the band £1000.

Consideration can take two forms:

* executed consideration - an act in exchange for a promise, such as a reward case where the person making the offer promises to pay the reward upon the act of the act being completed. * executory consideration - the parties exchange promises to perform acts in the future, most contracts begin this way. For example, a seller promises to deliver to a buyer as a result of the buyers promise to buy at the agreed price. Consideration from the buyer is the promise to pay the price on completion.

There are 5 rules of consideration, which are,

1) consideration must not be past 2) consideration must be sufficient but need not be adequate - there is no requirement that the consideration must be market value, providing some of value is given eg £1 given in exchange for a house would be valid, the courts are not concerned with whether the parties have made a good or bad bargain 3) consideration must move from the promise - if a person other than the promisee is to provide the consideration, the promisee can not enforce the agreement

Tweed one v Atkinson (1861)

A couple were getting married and the father of the bride entered into an agreement with the father of the groom saying that they would each pay the couple a sum of money. Unfortunately both the father of the bride and the father of the groom died without paying any money. The groom then made a claim against the executor of the will. The claim failed as the groom was not party to the agreement and the consideration did not move from him. Therefore he was not entailed to enforce the contract.

4) an existing publics duty will not amount to a valid consideration - where a party has a public duty to act, this can not be used as consideration for a new promise 5) an existing contractual duty will not amount to valid consideration - if a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise

Capacity

Capacity is the legal power to enter into a contract.
Who does not have the legal capacity?
* minors - do have limited capacity
* bankrupts
* incapacitated persons - do have limited capacity

For example, minors. Legal rules have been developed to protect minors from contractual liability and to allow them to also enter into agreements in limited circumstances. There are two types of contract that bind minor when dealing with adults, - supply of necessary goods

- employment

Also incapacitated persons are unable to enter into a contract. People suffering from a medically diagnosed mental health condition cannot enter into a valid contact as it is believed they do not have sufficient mental capacity to understand what it is they are doing. Also if the person is intoxicated and able to prove they were at the time the contract came into place they are seen as an incapacitated person and are unable to legally enter into a contract.

Privity of a contract

The doctrine of private means that a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. Under common law only a promisee may enforce the promise meaning that if the third party is not a promisee they are not a privy to that certain contract. It is a legal concept denying third parties the right to sue on a contract.

Price v Easton (1833)

This case involved a three way argument. Basically Easton agreed with X that he would pay Price for the work that X had done. They completed the work and Easton refused to pay Price the money, Price tried to sue Easton but he failed. This was due to private of a contract. The contract was made between Easton and X therefore Price was not a privy to the contract.

Task Three (p3)

Describe the law with respect to misrepresentation in a given situation.

Misrepresentation is a false statement of fact made by one party to other party before the contract is made with a view to inducing the other to enter it. For example, 'one carful owner' this statement is very misleading as you would expect that only one person has owner the product before and has been very careful with it, but this statement really could mean, it may have only had one careful owner but had ten bad owners. This statement is not lying it is just stating a fact and leaving out important detail therefore this is an example of misrepresentation. Once it has been established that a false statement has been made and that it induced the contract, it is necessary to determine the type of misrepresentation in order to determine the available remedy.

There are different types of misrepresentation. For example,

Fraudulent - A person will be liable for fraud if they make a statement which they know to be false or they have no belief in its truth or they are reckless or careless whether it is true or false. For example, Lapland new forest produced a website showing fantastic winter scenes. Unfortunately, the photos on the website were not taken at the park and customers were hugely disappointed when they arrived at the resort to find it is not at all like the website, many demanded their money back. In 2009 the owners of the park appeared in court and were charged with fraudulent misrepresentation.

Innocent - a false statement made by a person who had reasonable grounds to believe that it was true, not only when the contract was made but also when the contact was entered into.

Negligent - A person can be liable when they make a false statement and have no reasonable ground for believing the statement to be true.

In the situation given I believe that it is negligent misrepresentation as Esso had no reason to believe that the statement given by their experienced representative was true at the time or the time the contract was entered into. I think the representative gave a false statement to get Martin to enter into the contract. I think Esso were inducing Martin into entering the contact, although, Martin would have expected the statement to be correct as it was an experienced representative for Esso who gave the statement he would have thought that they would be a reliable source so he probably did not do any checks on the land and just thought their word for it.

Task Four (m1)

Analyse the impact of the requirements for a valid contract in a given situation.

1) Mr Baron
You have not entered into a valid contract as Mrs Anderson did not accept your offer. She informed you that she intends to sell her car at a certain price and you said you would like to buy it. There is o evidence that offer and acceptance has taken place here therefore no contact was made.

2) Mr Cunningham
Although the seller offered you the product at £900 as soon as you offered him £800 the contract was broken. This is because of counter offer taking place. Even though you were prepared to pay the full price in the end, you had broken the contract by counter offering him therefore it is his choice whether to sell the product or not and whether to enter into another contract with you.

10) Mrs Lawrence (I wasn't sure if the garage checks/services the car before they sell it on so I did two explanations)

This is a case of fraudulent misrepresentation. Before the car was sold to you, the car sales showroom should have checked the car to make sure everything they were stating about the car was correct. Therefore they should have known that the mileage was significantly higher when you purchased it.

This is a case of innocent misrepresentation. At the time when the car sales showroom sold the car to you they did not know that the mileage was significantly higher therefore it can not be seen as their fault as they were lead to believe that the statement they were giving was true.