Law for Standard Form Contracts in Businesses
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Published: Wed, 21 Feb 2018
1a. Explain the different types of business agreement and the importance of the key elements required for the formation of a valid contract
A contract is defined as an agreement which legally binds the parties (BPP Professional Education, 2004). However there are many types of contract between two businesses such as unilateral, bilateral, specialty, simple and standard form contract (Doti Chee, 2009). Firstly unilateral contract is a legal agreement in which only one of the two parties makes legally enforceable promises. In this contract between two companies at a certain time only one party will do their duties only when a particular situation come out the other party will do their duty (BPP Professional Education, 2004). Furthermore the rule of unilateral contract is that it holds that offers can be revoked at any time prior to completion of the requested performance. The promise is enforceable only upon completion of the requested performance (Doti Chee, 2009).
One of the most famous case studies in unilateral contract is Carlill v. Carbolic Smoke Ball Co. 1892 (Referred to Appendix A) (Lawnix, accessed 2009). In this case there is a unilateral contract which was stated by Smoke Ball Co. The contract is if any person who used D’s smoke ball three times per day as directed and contracted influenza, colds, or any other disease they will receive 100 pounds by Smoke Ball Co. However for Carlill, she purchased a ball and used it as directed and Carlill contracted influenza, it shows that she accepted the offer by performing the conditions. So the contract between both parties was valid. Furthermore it is a unilateral contract so that the rule of unilateral is applied in which when Carllil contracted influenza which means she performed the conditions of the contract and met all requirements o the contract. So after that it Smoke Ball Co.’s turn to perform their actions which is give Carllil 100 pounds. As for the rule the promise is enforceable only upon completion of requested performance. The performance of Carllil is the requested performance so at that time the company is bounded by the contract and they had to pay Carllil the money. The case if Carllil vs Smoke ball Co. can alsobe considered as executed consideration. It is a performed or executed act in return for a promise (BPP Professional Education, 2004).
The second type is bilateral contract, it is the contract in which both parties take responsible at the same time and both of them take promises (BPP Professional Education, 2004). It arises where let say company A promises to sell a computer to company B in return B promises to pay the purchasing price. It means that both parties will take their actions at the same time and as the rule of bilateral contract both of them are bounded by it. It means that company A will have to deliver the right product which is computer to company B at the given time and in return company B has to pay the purchase price for company A. This contract is usually seen in trading and commercial transaction. It would be breach of contract if either withdrew without the consent of the other. It also considered as executory consideration which is a promise given for a promise not a performed act (BPP Professional Education, 2004).
On the other hand, specialty contract is express contract made under seal. They are not merely written but delivered over by the party bound. The specialty contract is usually in buying bonds, deeds, etc. The solemnity and deliberation with which a deed or a bond is presumed to be entered to, attack to it an important and character which do not belong to a simple contract. In the case of specialty, its rule is no consideration is necessary to give it validity, even in the court of equity (BPP Professional Education, 2004).
The forth type of business contract is simple contract. Simple contract is any binding contract other than a contract under seal. It can be both express and implied or partly written or partly oral. It consists of a promise to do or refrain from doing something, in exchange for doing something given or promise in return. The parties must intent the agreement to be binding on each other. Furthermore the rule of simple contract requires that there be some good cause, consideration or motive, before they can be enforced in the courts (BPP Professional Education, 2004).
The last type is standard form contract. It is a pre-prepared contract where all the terms have already set. In standard form contract each of the party will have different duties such as a recipient, they have little or no prior negotiation. On the other hand the provider of the contract has their own standard terms and conditions. The standard form contract can usually be found in a contract between employees and the company (BPP Professional Education, 2004). On the other hand in contrast to specialty contract, the rule of simple contract stated that as a general rule, the common law treats standard form contracts any other contract. It must contain the essential elements of a contract (Doti Chee, 2009).
However in every contract there are seven keys elements which a contract must contain in order to be valid and enforceable by the law which are agreement, consideration, intention to create legal relations, legal capacity to contract, form of a contract, consent and legality of object (BPP Professional Education, 2004). Firstly the agreement which is determined by the rules of offer and acceptance. It must contain the offer which is a defined promise to be bound on specific term and acceptance which is unqualified agreement to the terms of the offer (BPP Professional Education, 2004). As shown in the figure below is the formation of a simple contract.
However in offer there are three elements which are certainty of offer, invitation to treat and termination of offer. The certainty of offer is a definite offer maybe to a class of persons or to the world at large. While on the other hand, the key way that an offer is terminated is by being accepted or creating agreement. So that an offer is terminated and it may no longer be accepted in some case such as rejection, lapse of time, revocation by the offeror, failure of a condition to which the offer was subject and death of one of the parties (BPP Professional Education, 2004). Lastly the invitation to treat is an indication that someone is prepared to receive offers with the view to forming a binding contract. It is not an offer in itself. There are our types of invitation to treat which are auction sales, advertisements, exhibition of goods for sale and an invitation for renders (BPP Professional Education, 2004).
The second element in agreement is acceptance, it can be by express words or by action and it may also be inferred from conduct too. There are three important elements of acceptance which are term of acceptance, counter offer and communication of acceptance (BPP Professional Education, 2004). Firstly the counter offer is the acceptance which purports to introduce a new term. If a counter offer is made, the original offeror may accept it but if he rejects it his original offer is no longer available for acceptance (BPP Professional Education, 2004). On the other hand the acceptance must be communicated. The general rule is that acceptance must be communicated to the offeror and is not effective until this has been done. Furthermore The acceptance must be communicated by the offeree or someone authorized by the offeree. If someone accepts on behalf of the offeree, without authorization, this will not be a valid acceptance (Doti Chee, 2009). The offeror may waive the need for communication of acceptance by marking an offer to the entire world. Moreover he may indicate that he expects acceptance through the post. There are also three exceptions to the communication rule which are terms of offer, conduct of the offeror and postal rule (BPP Professional Education, 2004). Furthermore as the term of the order, it can state or imply that acceptance need not to be communicated to the offeror.
One of the case examples for agreement is the case between Ramsgate Victoria Hotel Co vs Montefiore 1866 (referred to Appendix A) (BPP Professional Education, 2004). In this case the defendant applied to the company for shares and paid a deposit to the company’s bank, it means that the defendant give an offer to the company. However after that the company sent him an acceptance by issue of a letter of allotment it means that it is the acceptance for his offer. However the acceptance was sent only when the offer was lapsed so that it is not accepted.
The second element is the consideration. The agreement or the obligations assumed by each party must be supported consideration from the other party. The principle is that the parties to a contract must each provide something, whether money, the provision of a service or some other form of contribution to the contract. However it has also been described as “the price of the other person’s promise” (BPP Professional Education, 2004). However for the consideration to be valid, it must contain three elements the executed, executory and cannot be past consideration. Firstly the executed consideration is a performed or executed act in return for a promise (BPP Professional Education, 2004). For example A offers a reward for the return of lost property, his promise becomes binding when B performs the act of returning A’s property to him. While in contrast, the executory consideration is a promise given for a promise, not a performed act (BPP Professional Education, 2004). For example if a customer orders goods which a shopkeeper undertakes to obtain from the manufacturer, the shopkeeper promises to supply the goods and the customer promises to accept and pay for them. Thirdly the consideration cannot be past. Anything which has already been done before a promise in return is given is past consideration which, as a general rule, is not sufficient to make the promise binding and the rule is that past consideration is no consideration (BPP Professional Education, 2004). One of the cases about past consideration is Re McArdle (referred to Appendix A) (BPP Professional Education, 2004). In this case one of the mother’s son and his wife lived together in the house, the wife made improvement to the house and the children agree to repay the sum of £488 ‘in consideration o your carrying out certain alterations and improvements’ to the property. At the mother’s death they refused to do so. In this situation the time of the promise between the children and the wife the improvements were considered as past consideration. According to the rule of past consideration, past consideration is no consideration so they were not bounded by it.
The law says that consideration need not to be adequate but it must be sufficient. This means that the consideration need not be of equal value to the parties to the contract but it must be of some value to the parties involved. This does not have to be financial or monetary value, although obviously in many contracts it often is (BPP Professional Education, 2004). The term sufficiency of consideration means that the consideration must be something more than the party involved was already intended to do. It must be deemed actually to be consideration. While adequacy is the ability to reasonably or legally satisfy the requirement (Business Dictionary, accessed 2009).
The case Chappell & Co vs Nestle Co Ltd (referred to Appendix A) is a famous case study for adequacy (BPP Professional Education, 2004). The case arose when Nestle made a special offer, whereby if people collected three wrappers from Nestle bars of chocolate and sent them with small money they could get a copy of a record “Rockin’ Shoes” The copyright to the records was owned by Chapple, who claimed that there had been breaches of their copyright. The case turned round whether the three wrappers were part of the consideration. However in this case the defendants had required that wrappers were sent in as part of the special offer, for obvious commercial reasons. It was help that the wrappers were part of the consideration as they had commercial value in the eyes of Nestle, one of the parties to the contract. There is also a case of Collins vs Godefroy (1831) (referred to Apeendix A) for the sufficient of consideration (BPP Professional Education, 2004). In this case there was no consideration for the promise, as the claimant was obliged to appear by law. Because of the performance o an existing obligation imposed by statue is no consideration for a promise of reward.
The last part of consideration is the privity of contract. If you do not provide consideration, you cannot sue on the contract. This is a critical rule in contract law and reflects the fact that consideration is essential. This maxim means that only the person who has paid the price of the contract can sue on it. Privity of contract is defined as the relation between the two parties to a contract and third parties who are no privy to the contract generally have no right of action (BPP Professional Education, 2004). There is a case of Tweddle vs Atkinson 1862 (referred to Appendix A) for the privity of contract.
The next element is intention to create legal relation. An agreement is not a binding contract unless the parties intend to create legal relations and have the capacity or ability to do so. It can also be defined as the willingness to be bound by the terms of the contract. Furthermore anyone entering the contract has to have the capacity to do so; otherwise it can be argued that they are not acting in full understanding of what they are doing. Where there is no express statement as to whether or not legal relations are intended the courts apply one of two presumptions: social, domestic and family arrangements are not usually intended by the parties involved to be binding, commercial agreements are usually intended to be legally binding (BPP Professional Education, 2004). One of the case examples for intention to create legal relation is the case Balfour vs Balfour 1919 (referred to Appendix A). The case is that a husband promised to pay his wife £30 a month to return to Ceylon with him but later the marriage ended in divorce and the wife sued the husband for the monthly allowance which he no longer paid. In this case, because of the informal agreement of indefinite duration made between husband and wife was not intended to be legally binding so that the wife cannot sue the husband for the money.
There is also very important element for the contract which is the legal capacity to contract. Capacity refers to the fact that the law regards some groups as being unable to enter into binding contractual arrangements, because they might not be in a position to fully understand the agreement they have entered into. The groups include minor, mental disorders and drunkenness (BPP Professional Education, 2004). From January 1, 1970, the Family Law Reform Act 1969 reduced the age of majority to 18 and authorized the term “minor” as an alternative to “infant.” “Minor” is now the preferred term. The capacity of a minor to contract is still regulated by the common law, modified by the Minors’ Contracts Act 1987 which repealed a troublesome statute, the Infants Relief Act 1874 (Doti Chee, 2009). There is a case of Nash vs Inman 1908 (referred to Appendix A). In this case a Saville Row tailor sued an infant Cambridge student for the price of clothes (including 11 fancy waistcoats) he had supplied. The tailor failed in his action because the student was already adequately supplied with clothes because the clothes were not necessaries so that the minor was not binding by the contract.
The next key element of the contract is the form of contract. The contract can be made in writing or oral or implied by conduct. The general rule is that a contract may be in any form (written or oral) but a minority of contracts have to be made in a particular form. Firstly implied terms are those terms which, although not expressly stated by the parties by words or conduct, are by law deemed to be part of the contract. Moreover the terms can be implied into contracts by custom, by courts or by statute (Doti Chee, 2009). On the other hand, writing make it easier to prove the contents o the contract but it is not usually necessary unless related to one of the following: contracts by deed, in writing, evidenced in writing or contracts made through the internet and by e-mail. Those are the formalities of the contract (BPP Professional Education, 2004). Contracts which must be by deed include leases for three years or more, a conveyance or transfer o a legal estate in land and a promise not supported by consideration. On the other hand the contracts which must be in writing include a transfer of shares in a limited company, the sale or disposition of an interest in land, bills of exchange and cheques, consumer credit contracts. Furthermore some contracts may be made orally but are not enforceable in a court unless there is written evidence of their terms. The most important contract of this type is the contract of guarantee. A signed note of the material terms of the contract is sufficient (BPP Professional Education, 2004).
There is a case of Clyde Mason vs. Charley Tatum (referred to Appendix A) in the form of contract. In this case Clyde Mason as a minor went into a contract of buying land with Charley Tatum and the contract is made in writing after some days before the delivery the price of the land was doubled and the adult refused to do his performance o the contract. The minor sued for that. This case study is an example of the form of contracts which must be by deed. So in decision because the contract is binding for the adult so Tatum had to do his duties as in the contract with the minor.
The consent is also one of the key elements of the contract. The validity of a contract may be affected if a person has been misled into a contract or if the parties have come to agreement but are actually at cross-purposes, for example one of them is mistaken as to the precise nature of the contract (BPP Professional Education, 2004). In consent there are four violating factors which are mistakes, misrepresentations, duress and undue influence. An intentional act done out of mistake may occasionally be defensible if it was reasonable. On the other hand a misrepresentation is a false statement of fact made by one party to another, which, whilst not being a term of the contract, induces the other party to enter the contract. The effect of an actionable misrepresentation is to make the contract voidable; giving the innocent party the right to rescind the contract and/or claim damages (Law Teacher, accessed 2009). Duress is a possible legal defense, one of four of the most important justification defenses, by which defendants argue that they should not be held liable because the actions that broke the law were only performed out of an immediate fear of injury. In order for duress to qualify as a defense, four requirements must be met: threat must be of serious bodily harm or death, harm threatened must be greater than the harm caused by the crime, threat must be immediate and inescapable and the defendant must have become involved in the situation through no fault of his or her own (Law Teacher, accessed 2009). While undue influence is a judicially created defense to transactions that have been imposed upon weak and vulnerable persons that allows the transactions to be set aside. In order to establish the undue influence four elements must be shown. A judicially created defense to transactions that have been imposed upon weak and vulnerable persons that allows the transactions to be set aside. Second, there must be an opportunity for exercising undue influence. Third, there must be evidence that the defendant was inclined to exercise undue influence over the victim. Fourth, the record must reveal an unnatural or suspicious transaction (Legal explanations, accessed 2009).
As example of the consent the case of ICI v Shatwell 1965 (referred to Appendix A) is the most common one. Because of the electric cable was too short so that two experienced shot firers decided to go against the law they carried out the test without taking cover before doing so and there was a premature explosion and both were injured. They sued the employer. In this case they had consented to the risk. The employer was not liable since it had not been negligent nor had it committed or permitted a breach of statutory duty over safety procedures. The injured men were trained for their work and properly left to carry out safety procedures of which they were well aware. So they cannot sue the employer for that.
The last key element of contract is the legality of object. Legality is an agreement to be an enforceable contract must contemplate the attainment of an object not expressly forbidden by law nor contrary to public policy. For example: An agreement for the sale of realty to be used expressly for the sale of alcoholic beverages is unenforceable as its object is contrary to law. So also an agreement by which A, a confirmed woman hater, promises B a house for B’s promise never to marry, is against public policy, as discouraging marriage, and therefore unenforceable (Chest of book, accessed 2009). The courts will not enforce a contract which is deemed to be illegal or contrary to public policy.
1b. Analyze the scenario from the perspective of the law of contract. Apply the rules of offer and acceptance in a given scenario, also considering any impact of new technology
Firstly as for review of the online transaction, we will go to look at the formation of contract. Contract is agreement between two or more parties which is enforceable at law (Doti Chee, 2009). However in order to be valid and enforceable by the law, the requirements for formation of contract are agreement and consideration. There is sometimes said to be a third element, namely, intention to create legal relations. But this third element is rarely a problem and it is true to say that, if it is a separate element, it goes without saying in the vast majority of cases (ANU College of law, accessed 2009). A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other (BPP Professional Education, 2004). On the other hand agreement is the meeting of minds between two more legally competent parties, about their relative duties rights regarding current or future performance (Business Dictionary, accessed 2009). Furthermore to determine whether or not an agreement has been reached, the courts will consider whether or not party has made a firm offer which the other party has accepted. Offer and acceptance are the key elements of agreement. The agreements must contain the offer which is a defined promise to be bound on specific term and acceptance which is unqualified agreement to the terms of the offer (BPP Professional Education, 2004). However for this case of online transaction, the principles governing the formation of written and oral contract can also be apply to contracts concluded through the internet. The contracts which are made through the internet also need an offer and acceptance to be valid.
Moreover according to the electronic transaction act 1999 and confirmed by s.11 of the Electronic Transaction Act. Cap 88, the website containing the details and the prices of the goods is an invitation to treat (ComLaw, accessed 2009). Invitation to treat is an indication that someone is prepared to receive offers with the view to forming a binding contract (BPP Professional Education, 2004). There are four types of invitation to treat which are auction sales, advertisements, exhibition of goods for sale and an invitation for tenders. As mentioned above the website containing the details and the prices of the goods is an invitation to treat so that it must follow the rule of invitation to treat. Its rule is that invitation to treat is not offer. It is an invitation to do business with another party and it is not an offer but an invitation to others to make offers.
One of the common case examples for invitation to treat is the case of Patridge vs Crittenden 1968 (referred to Appendix B). Mr Patridge placed an advertisement in Cage and Aviary Birds magazine containing the words ‘Bramblefinch cocks, bramblefinch hens, 25s each’. The RSOCA brought a prosecution for offering for a sale of protected species in contravention of the protection of Birds Act 1953. The justices convicted Patridge and he was sued. The advertisement of Mr Patridge was considered as an invitation to treat so according to the rule of invitation to treat it is not an offer. The prosecution could not rely on the offence of the ‘offering for sale’, as the advertisement constituted an invitation to treat. He was therefore not making an offer.
In this case there are two contracts were formed between Tuan’s company and Sally, a university student with Tech Ltd. Tech Ltd is Singapore listed company selling computers and other IT products in Ha Noi and they had recently established its own website to offer for sale various products over the internet.
Firstly for the existing contract between Tuan’s company and Tech Ltd it is a valid contract. The rules of offer are that it must be communicated, may be made to world, may be revoked at any time and distinguished from binding options and from invitation to treat. On the other hand the rules of acceptance are it must relate to offer, mental acceptance is insufficient but may be inferred, must be unqualified, method must conform with other, if offer silent as to method that chosen to be appropriate, if it is mailed effective from time of posting and communicate may be dispensed with (Doti Chee, 2009). According to the rules of offer and acceptance in the contract between Tuan’s company and Tech Ltd there was an offer and acceptance. The online transaction as mentioned above is considered as invitation to treat. However the system in Tech Ltd works in the following manner: every time an order was placed by a buyer after filling up the requisite form, which included the furnishing of a valid credit card account, it would be followed by an automated reply from Tech Ltd that the transaction was successful. It means that by filling the form with valid information Tuan had already made an offer to Tech Ltd and then automatically they will send a reply to confirm that the transaction was successful and it is considered as an acceptance from Tech Ltd to Tuan’s offer. There is also legal intention between two parties so that the contract between Tuan and Tech Ltd is a valid contract.
In this case if Tech Ltd did not deliver the 4,000 sets of computers it means that they breach the contract. Because the contract is a valid contract so that both parties are binding by the contract, they must do their duties as in the contract stated. If Tech Ltd breached the contract Mr. Tuan can sue them for that if they did not have any reasonable reasons. However in this case Tech Ltd can proof that Tuan violated the contract by capitalizing on Tech’s mistake. Because of an error committed by an employee of Tech Ltd, the price of the printer was altered to $388 on the website, which normally retailed at $3,800. Tech Ltd can proof that Tuan based on that mistake to make contract with Tech Ltd. Because Tuan is the owner of a shop that sold IT peripherals, including a few sets of the said laser printer. So that he came to know about the real price of the printer and the extraordinarily low price offered by Tech Ltd. Furthermore according to the rule of unilateral mistake which is where one party is mistaken as to the terms of the contract and the other knows this, the contract will be void regardless of whether the terms is fundamental (Doti Chee, 2009), the contract between Tech Ltd and Tuan’s company is a void contract because Tuan knew about the mistake of Tech Ltd.
There is a similar case of unilateral mistake which is the case of Hartlog v Colin and Shields 1939 (referred to Appendix B). In this case by mistake the defendants offered at the same price ‘per pound’ instead of ‘per piece’, which obviously worked out much cheaper. After that they realized their mistake, the sellers refused to deliver the skins and were sued by the buyers for breach of contract. However in this case because the buyers were aware of the seller’s mistake so that there was no contract as same in the case of Tech Ltd and Tuan’s company. In conclusion because there is a unilateral mistake of Tech Ltd and Tuan knew about his so that in application o unilateral mistake rule the contract is void contract and Tuan cannot sue Tech Ltd for breach of contract.
However in this case if Tuan’s company agreed to sell those ordered printer to the third party, they cannot maintain their rights against Tech even though they may be a bona fide purchaser. Because there is no contract between Tech Ltd and Tuan’s company so the goods are not belonging to Tuan’s company and they cannot sell it. Tech Ltd had the rights to take back their goods and the third party did not have the rights against Tech Ltd.
The second contract in this case is the contract between Tech Ltd and Sally, a university student, because the transaction was taking in the same manner with the case of Tuan’s company which is through the website o Tech Ltd. Sally placed one set of the laser printer through the same system which means she offered to buy a printer through Tech Ltd’s website and then they automatically sent a reply to confirm the transaction was successful. It means that they were accepting the offer from Sally to sell one set of printer with the given price on the website. The contract had both offer and acceptance so that there was a valid contract between Tech Ltd and Sally.
However because of the mistake committed by an employee of Tech Ltd the price of the printer was altered to $388 which is extraordinarily low price. Sally saw Tech Ltd’s website and thought that the price of $388 was very reasonable and she is a university student so she cannot know the real price of the printer and she did not know that there was a mistake from the employee. According to the rule of common mistake which is if one party makes a mistake and the other party is unaware of the mistake, the contract is binding, so that the contract between Tech Ltd and Sally is a valid contract. In this case Sally as a student so she cannot know the real price and the mistake of Tech Ltd. Furthermore because of that reason Tech Ltd cannot proof that Sally actually knew the contract is under a mistake.
Moreover there also a similar case of common mistake which is Centrovincial Estates plc vs Merchant Investors Assurance Co Ltd (1983) (referred to Appendix B). In this case a landlord offered, by mistake, to renew his tenant’s lease at a rent of £65,000 a year; he had meant to offer it at £126,000. The tenant, unaware of the mistake, accepted the offer. It means that the tenant did not know about the mistake so that the contract was binding to both parties. In conclusion the contract was binding with Tech Ltd and if they did not deliver the printer to Sally, she can sue them for that.
Lastly for Tech Ltd to prevent similar situation in the future they should build a structure or system based on the counter offer. As has been said acceptance must be unqualified agreement to the terms of offer. Acceptance which purports to introduce any new terms is a counter offer. If counter offer is made, the original offeror may accept it but he rejects it his original offer is no longer available for acceptance (BPP Professional Education, 2004). For example it is the case of Butler Machin Tool Co vs Ex-cell-O Corp 1979 (referred to Appendix B). In this case the claimant offered to sell tools to the defendant. However the defendant accepted the offer enclosing their own standard terms which differed from those of the claimant. The claimant ackno
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