Law for Standard Form Contracts in Businesses
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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 acknowledged acceptance by returning a tear-off slip from the order form. In decision, the defendant's order was really a counter-offer. The claimant had accepted this by returning the tear-off slip. It means that they had accepted the counter offer and the contract if binding. However in suggestion for Tech Ltd based on the rule of counter offer, they should change their system. Whenever a customer places an order through the website they should send a reply for the customer to confirm. The reply should contain the information of the product and the price of the product. At that time if by mistake the prices of the products which are stated on the website are wrong Tech Ltd will send a reply with the real price of the product. It means that the customers offer to buy and Tech Ltd send back a counter offer with the original price of the product. If the customers accept it the contract will be valid and if not the previous offer which is with the mistake price is no longer for acceptance. It will help Tech Ltd to prevent similar issues in the future.
1c. Assess the importance of the rules of intention and consideration of the parties to the agreement
In this case Mr. Tuan who is the owner of a number of shops had made a contract with Josie. Mr. Tuan offered a price of $250 per calendar month and Josie had accepted that it means that their contract is a valid contract because it contains both agreement and offer. After moving into the flat she redecorated it at the cost of $3,500 and Tuan was so pleased with the work and promised to reduce her rent by $50 per month. However Mr. Tuan now refuses to reduce the rent and also increase it to $300 per month which is $50 higher than the price in the contract. As stated in the contract the price of renting the shop is $250 and there were no terms for the repair and upgrading of property. What Josie did when she moved into the flat was she voluntarily performed the act which is redecorating the flat which Mr. Tuan did not ask Josie to do so.
In this case there were both agreement and consideration in the contract of Tuan and Josie. In renting the shop, Tuan gave promises which were allow Josie to rent his shop without the need to redecorate it. On the hand the consideration from Josie was the payment for Tuan monthly as the amount agreed in the contract. Later when Josie redecorated the shop and Tuan promised to reduce the price by $50 per month, there was a consideration too. Because as the works of Josie, Mr. Tuan was so pleased for that and in return to her works he promised to reduce the rent. Both parties promised to give and did something for the other and this was considered as consideration. There is a case example for consideration which is the case of Thomas vs Thomas 1842 (referred to appendix C). In this case husband expressed the wish that his widow should have the use of his house during her life. The defendants allowed the widow to occupy the house in accordance with her husband's wishes and in return for her undertaking to pay a rent of £1 per annum. However the husband's wishes were not valuable consideration but the nominal rent was sufficient consideration.
However there are two types of consideration which are executed consideration and executory consideration. The executed consideration is a performed act in return for a promise (BPP Professional Education, 2004). In the case of Tuan and Josie after the redecoration for the shop he promised to reduce the price for her it was considered as executed consideration. Josie decorated as a performed act for the promise of Tuan to reduce the price. On the other hand the executory consideration is a promise given for a promise (BPP Professional Education, 2004). As in this case the executory is the contract of renting the shop. Mr. Tuan promised to allow Josie to rent the shop with the price of $250 per month and as return Josie promised to pay the money for Tuan. However for the act or the forbearance of one party, firstly Josie, she volunteer to redecorate the shop repaired the roof and renewed the kitchen at a cost of $3,500. Even though Mr. Tuan did not ask her to do so but she still spend a lot of money to redecorate it and had no expected of her works. On the other hand after her works Tuan gave a promise to reduce her rent but after that he refused to do so and also seek for increasing the price of the shop to $300 per month. It was not forbearance.
The law says that the consideration need not be adequate but it must be sufficient. It means that the consideration need not to be equal to the parties to the contract but it must be of some value to the parties involved (BPP Professional Education, 2004). In this case the consideration was not equal to Josie because she had spent a lot of money to redecorate the shop and Tuan did not only refuse to reduce the price but also wanted to increase it. However in this case both parties still have some value from the contract. As Tuan, he had the money for the rent and Josie she had the shop to do her works. For a good consideration it could be after Josie redecorated the house, Tuan should reduce the price for her as what he promised.
After the decorations of Josie, Mr. Tuan made a promise it means that the promise was only made after the performance. So the consideration is considered as past consideration and according to the law of consideration past consideration is no consideration. So in this case Josie cannot sue Mr. Tuan and force him to reduce the renting price and she will have to pay $250 per month. There was a similar case of past consideration which was the case of Rosorla vs Thomas 1842 (referred to Appendix C). In this case after the sales were over the defendant told the claimant that the horse was 'sound and free from vice'. The horse turned out to be vicious and the claimant brought an action on the warranty. It means that the promise was made only after the sales so it was past consideration and according to the rule past consideration is no consideration and the contract was not binding.
However there are three exceptions to rule of past consideration which are when request may imply a promise, the Bills of exchange Act 1882 and the Limitation Act 1980 (BPP Professional Education, 2004). Firstly when a request is made for a service this request may imply a promise to pay for it. If after the service has been rendered, the person who made the request promises a specific reward, this is treated as fixing the amount to be paid under the previous implied promise. On the other hand past consideration is sufficient to create liability on a bill of exchange under s 27 Bills of Exchange Act 1882. Lastly after six (or in some case twelve) years the right to sue for recovery of a debt becomes statute barred by the Limitation Act 1980 (BPP Professional Education, 2004). There was a case of exception to the rule of past consideration which is the case of Lampleigh v Braithwait 1615 (referred to Appendix C). In this case the defendant had killed a man and had asked the claimant to obtain for him a royal pardon. The defendant then promised to pay him £100. He failed to pay it and was sued. The defendant's request was regarded as containing an implied promise to pay, and the subsequent promise merely fixed the amount
However in this case we have to consider about the intention to create legal relation. However in most agreements no intention is expressly stated. The agreement between Mr. Tuan and Josie is not a domestic arrangement because it is not between husband and wife or relatives. On the other hand the contract between them is commercial agreements (Rose and frank vs JR Compton & Bros 1923). When people enter into commercial agreements it is presumed that there is an intention to enter into legal relations unless this is expressly disclaimed or the circumstances displace that presumption. Any express statement by the parties of their intention not to make a binding contract is conclusive.
In conclusion, the contract between Tuan and Josie was a valid contract. However the promise of Mr. Tuan after the decoration of Josie was a past consideration and it is not any types of exception to the rule so that there was no consideration of reducing the price. It means that Josie cannot force Tuan to reduce the rent for her.
There were also a second issue in the contract which is Tuan was seeking to increase the price to $300 per month which is $50 higher than the price in the contract. Firstly the price of the shop was agreed between both parties that it was $250 per calendar month and both Tuan and Josie agreed with that and sign the contract. Furthermore the contract is a valid contract because it contained offer, acceptance, consideration and intention to create legal relation so that both parties were binding with the terms of the contract. As the contract terms, it was clearly stated that the price of renting is only $250 per month. What Tuan did was he seek to increase the price to $300 can be considered as past consideration. Because it was a past consideration so there was no consideration of increasing the price. Josie was not enforceable of paying $300 per month. In conclusion the promise of Tuan to increasing the price was past consideration and breach of contract terms so if he tried to do that Josie can sue him. She had to pay only $250 per month for the shop she rent as stated in the contract between Tuan and Josie.
1d. Explain the importance of the contracting parties having the appropriate legal capacity to enter into a binding agreement.
Andrew who is Mr. Tuan son is 17 year old so all of his contracts are under the incapacity law which is also known as the minor law. At common law persons under the age of 21 were designated "infants" and had only a limited capacity to contract. 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).
The general principle is that a contract made by a minor with an adult is binding on the adult but not on the minor. If, after attaining his majority, he ratifies it by an act confirming the promise he made when a minor, he is bound (Doti Chee, 2009).
In this situation, the case is Andrew who is a minor had made three contracts in a day. Firstly, he entered the Rogue Betting Establishment plc and placed a bet on the 7.30 pm race at Bulldog Park Race Course. After that he contacted a stockbroker and purchased 10,000 shares in Tarnished Shine Corporation. Finally he agreed to sell a faked famous brand watch to Charles. However after that the horse won the race, the stock which he purchased increased in value and he made a good profit on the watch. He asked each party for his money and none of them were prepared to pay him.
In the first contract this is contract is a type of a void contract. A void contract is not a contract at all. The parties are not bound by it and if they transfer property under it they can sometimes (unless it is also an illegal contract) recover their goods even from a third party (BPP Professional Education, 2004). In this case, it is a void contract because under the gambling law, the minimum gambling age is from 18 - 21; it is based on different laws in different countries (Nelson Rose, 2003). However the minimum age is at least 18 but in this case Andrew is only 17 year old. So he is not allowed to gambling. So that the Rogue Betting Establishment PLC can avoid the contract at any time. The whole transaction is regarded as a nullity (invalid). It means that at no time has there been a contract between parties. Parties are not bound by it and any goods obtained under the agreement must be returned.
So in this contract Andrew cannot take his money back and have the money from the dog winning the race. However, under the "UNLAWFUL GAMBLING ACT 1998 - SECT 16 - GAMBLING WITH MINORS" it is said that a person who is of or above the age of 18 years must not: engage in any form of gambling with a minor, or engage in any form of gambling with another person on behalf of a minor, or for fee or reward, send (or cause to be sent) to a minor any inducement to gamble (New South Wales Consolidated Acts, accessed 2009). It means that the Rogue Betting Establishment PLC was illegally let Andrew place the bet on the race. There is a case example for void contract which is the case of Valley Medical Specialists v. Farber 1999 (referred to Appendix D). In this case D, a doctor, used to work for VMS. D is a specialist whose treatments patients need to receive once every six months. D signed an employment agreement with a restrictive covenant that limited where he could practice should he leave. He left, and P sought to enforce agreement and the court held that the restrictive covenant is void. Because as the rule of void contract, void contract is no contract so both parties were not binding by the contract.
In conclusion, because Andrew was 17 year old so he is a minor and according to the gabling act the minimum age of entering into gambling is 18 so that Andrew is illegally in placing a bet on the Rogue Betting Establishment plc. Furthermore because of that reason so that the contract between Andrew and Rogue Betting Establishment plc is a void contract. As the rule of void contract there was no contract between them. So even though the dog that Andrew bet in won, he cannot get his money from the betting company. However the money that Andrew sent to buy the bet he can get it back because according to the rule of void contract any goods obtained under the agreement must be returned (Doti Chee, 2009). So Mr. Tuan and Andrew can sue the company if they did not give him back the money he spent on.
In the second contract this is a voidable contract which is a contract which one party may avoid (BPP Professional Education, 2004). There are not clear laws or acts which state that the person under 18 cannot buy and sell shares. However in some country such as Australia they set the minimum age to buy and sell shares is 18 (Australia Securities Exchange, accessed 2009). However in this case the company accepted the buying from Andrew so that it is a valid contract. Furthermore in this case Andrew read in the paper that Tarnished Shine Corporation was doing well so he contacted a stockbroker and purchased 10,000 shares in that company. It means that he took an offer to buy 10,000 shares and the company had accepted it so the contract is valid contract. The minor is bound by the obligations as long as he retains the subject (until he decides to reject it). He must pay the rent or calls on the shares. The contract is voidable by the minor-he may repudiate (reject) it any time during his minority or within a reasonable time thereafter. However it is also said that contracts which are neither valid nor voidable do not bind the minor but are binding on the other party (Michael, 1850). However this contract is not a contract for necessaries and benefit of the minor so that he can refuse it at any time.
As the rule of voidable contract the contract is voidable by the minor-he may repudiate (reject) it any time during his minority or within a reasonable time thereafter. Furthermore the contract may operate as a valid contract unless one of the parties takes steps to avoid it. So the contract between Andrew and the Tarnished Shine Corporation is a voidable contract with Andrew. In application of the rule because Andrew did not avoid the contract so that it was a valid contract and Tarnished Shine Corporation is bounded by the contract. So when the shares were increased in value Andrew had the right to take his money because at that time he had also bought the share and he did not refuse it so that the contract is still valid. On the other hand, the organization has to pay him the money. In this case Andrew and Mr. Tuan can sue the organization if they are not willing to pay the money back. It can also be referred to the case between Edwards vs Carter 1893 (referred to Appendix D). In this case a minor promised to vest all his property which he might receive under his father's will in the trustees. However when the time came he refused to do it. At that time he was not a minor anymore so that it was too late for the repudiation and it was ineffective.
So in conclusion, the contract between Tarnished Shine Corporation and Andrew is a avoidable contract with Andrew and before Andrew decides to avoid the contract it is a valid contract with Tarnished Shine Corporation. Because of that reasons, when the shares increase in value Andrew had the rights to take his money.
The last contract is the contract between Andrew and Charles. This contract is considered as the unenforceable contract. It is a valid contract and property transferred under it cannot be recovered even from the other party to the contract. If either party refuses to perform the contract, the other party cannot compel him to do so. Unenforceable contracts are only problematic if a dispute over the contract arises (BPP Professional Education. 2004).
Is this case of Andrew, Charles already had an offer to buy the watch from Andrew and before the race start Andrew had already accepted the offer so this contract includes both the offer and acceptant so that it is a valid contract. However after the race finished Charles recognized that the watch is a faked watch and it did not cost that much and he refused to pay the money. In that case Andrew cannot force Charles to pay the money that they have in the contract because the contract is unenforceable and Andrew sold a faked watch so that he cannot get his money. Charles can refuse it at any time. Furthermore he cannot sue Charles to the court because it cannot be enforced in the courts if one of the parties refuses to carry out its terms (Doti Chee, 2009).
Furthermore in this case the caveat emptor should be considered. Caveat emptor is a Latin word which means "Let the buyers beware" it is a warning that notifies a buyer that the goods he or she is buying are "as is," or subject to all defects. When a sale is subject to this warning the purchaser assumes the risk that the product might be either defective or unsuitable to his or her needs. This rule is not designed to shield sellers who engage in fraud or bad faith dealing by making false or misleading representations about the quality or condition of a particular product. It merely summarizes the concept that a purchaser must examine, judge, and test a product considered for purchase himself or herself (Legal Dictionary, accessed 2009). So in application on the case of Andrew, Charles had to examine and test the watch first before he decided to purchase it. Moreover Under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud (Legal Dictionary, accessed 2009). However in this case there is also a representation of fraudulent. It is a false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury Legal Dictionary, accessed 2009). In this contract, Andrew already knew that the watch was a faked famous brand watch but he still sold for Charles without any notifications about the faked watch. He tried to make a fraud.
Furthermore according to the rule of caveat emptor when Charles agreed to by the watch, it means that contract was formed and both parties were bounded by it and he cannot recover from the seller except he can proofed that Andrew was amounting to fraud. Because Andrew had already known that the watch was a faked famous brand watch so that Charles can show the evidences which show that the watch was a faked and from that he can proof that Andrew already knew about the faked watch but he still try to sell it to Charles as a famous watch. At that point the contract will be void.
On the other hand, there was also a similar case in unenforceable with the case of Andrew which is the case of R Leslie Ltd vs Sheill 1914 (referred to Appendix D). In this case an infant obtained a loan of £400 by means of a fraudulent misstatement of his age. So he could not be compelled to repay it as this would constitute enforcement of the contract. The contract at first was a valid contract but when a problem came out it became an unenforceable contract with the minor.
So in conclusion, because Andrew was making a fraud of selling faked famous brands watch to Charles so that under the rule of caveat emptor Charles will not be binding by the contract anymore. Furthermore, Andrew cannot sue Charles and force him to pay the agreed amount for the watch.
2a, 2b. Analyze specific contract terms with reference to their importance and impact if these terms are broken. Apply and analyze the law on standard form contracts.
Firstly before entering into analysis the case study we need to know what term is. It is a clause or a provision that constitutes a substantive part of a contract and may create a contractual obligation breach of which could be cause for legal action. A term may be either an express term (clearly and directly stated) or an implied term (inserted by the courts or a statute) (Business Ditionary, accessed 2009). However in this case Mr. Tuan, builder, entered into a contract with Keith under which Keith agreed to supply Tuan with up to 300 tons of plaster at $5,000 a ton during the year 2000 as and when required. However the problems come out after that when Tuan ordered four loads of plaster of 20 tons each. The first three were satisfactory and paid for. The fourth load proved to be unsatisfactory as it contained lumps. Because of that Mr. Tuan wanted to breach the contract and will buy from other suppliers. However the agreement contained the following provisions:
- It is agreed between the parties that in return for executing this agreement
Tuan will not buy plaster from any other plaster supplier during the year 2000.
- It is agreed that no undertaking as to quality or fitness for purpose is given by Keith and no compensation shall be payable In respect of the suitability or otherwise of the plaster.
There are two terms in the contract between Tuan and Keith and both terms are express terms because they were clearly stated in the contract between Tuan and Keith. For the relative important of contractual terms, if one party breached the contract which means either Tuan or Keith breached the contract, the contract will not be binding on both parties. In this case if Tuan buy from other suppliers it is considered as he breached the contract. On the other hand Keith will breach the contract when he supply the goods with poor qualities. However there was the existing of exemption clause. It is a clause which seeks to release one of the parties from liability should something go wrong with the contract (BPP Professional Education, 2004). In this contract there were two exemption clauses which are Tuan will not buy plaster from any other plaster suppliers for one year and the second was no undertaking as to quality for fitness for purpose is given by Keith and no compensation shall be payable in respect of the suitability of otherwise of the plaster. Those are the conditions for relying on the clauses. For example if Tuan wanted to release for the contract he had to proof that Keith breached the contract and did not supply according to the terms of the contract first. Furthermore he had not breach the contract which was he did not buy from any other suppliers before Keith breach the contract. On the other hand, for the remedies for Keith, he will lost his sale and no one will pay for the 220 tones which Tuan ordered and also payment for the fourth load that he already supplied. If the contract is breached Keith will have to deal with a lot damages. In order to recover it he should reduce the price of the plaster and also make a promise with Tuan that the quality of the future goods will meet the requirements. Furthermore he should try to persuade Tuan to continue with the contract.
However there used to be some doubt on how far an exclusion clause could exclude liability in a case where the breach of contract was a failure to perform the contract altogether which is known as a fundamental breach (Doti Chee, 2009). It decides how far the party can rely on the exemption clause. In this case the fundamental breach will limit the exclude of Tuan from the contract. There is a case example of fundamental breach which is Photo Productions vs Securicor Transport 1980 (referred to Appendix E). In this case securicor agreed to guard the claimants' factory under a contract by which Securicor were excluded from liability for damage caused by any of their employees. However one of the Securicor guards deliberately started a small fire which got out of hand and destroyed the factory and contents, worth £615,000. In this case the exclusion clause was wide enough to cover the damage which had happened. Similarly in the case of Mr. Tuan he can rely on the exemption clause to protect himself against Keith and find a new supplier.
Furthermore the exemption clauses are controlled by both the common law and the Unfair Contract Terms Act 1977 (UCTA). In general the Act only applies to clauses inserted into agreements in commercial concerns of businesses. In principle private persons may restrict liability as much as they wish (BPP Professional Education, 2004). The Act uses two techniques or controlling exemption clauses: some types of clauses are void, whereas others are subject to a test of reasonableness. The main provisions of the Act are the avoidance of liability for breach of negligence (s.2), avoidance of breach of contract (s.3), unreasonable clauses (s.4) and sale and supply of goods (ss 6-7) (BPP Professional Education, 2004). However in this case, it was also affected by the Sale of Goods act 1979. Under the Sale of Goods Act 1979 traders must sell goods that are as described and of satisfactory quality. If consumers discover that products do not meet these requirements they can reject them and ask for their money back providing they do so quickly.Alternatively, they can request a repair or replacement or claim compensation (BIS, accessed 2009). In this case Keith did not supply the goods with the satisfy quality so as the Act stated Tuan will be able to breach the contract without any responsibilities.
The next factor should be considered is the avoidance of liability for Breach of Contract which is the mean of reasonableness. The person who imposes the standard term, or who deals with the consumer, cannot, unless the term is reasonable such as restrict liability for his own breach or fundamental breach or claim to be entitled to render substantially different performance or no performance at all (BPP Professional Education, 2004). In addition clauses which are subject to reasonableness by UCTA obviously only apply if the courts decide it is reasonable for them to do so. The Act gives some guidelines as to the meaning of reasonableness for these purposes and the concept has been interpreted by the courts (Doti Chee, 2009).
Section 11(2) refers to Schedule 2 to UCTA, which lays down a number of issues that the court may consider when deciding whether a term is reasonable for the purposes of Sale and Supply of Goods ss.6 and 7. It is also known as the test for reasonableness and those factors are:
- The relative strengths of the parties' bargaining positions and other means by which the customer's requirements could have been met;
- Whether the customer received an inducement to agree to the term (e.g. if goods were offered more cheaply if the exclusion clause was accepted), or could have been entered into similar contract with another party without agreeing to that term;
- Whether the customer knew, or ought reasonably to have known, about the term, bearing in mind any trade custom or previous, course of dealing;
- Where an exemption clause only comes into operation if a particular condition is not fulfilled, whether it was reasonable at the time of contracting to expect that it would be feasible to comply with that condition;
- Whether the goods concerned were made or adapted to a special order
Furthermore for the fairness of restraint, a clause may be inserted into a contract which aims to exclude or limit one party's liability for breach of contract or negligence. However, the party may only rely on such a clause if: it has been incorporated into the contract, as a matter of interpretation, it extends to the loss in question. Its validity will then be tested under, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 (Doti Chee, 2009). In this case the restraints for both parties were equal. Tuan was prohibited to buy from other suppliers while Keith had to supply the goods with satisfy quality if not Tuan can breach the contract.
Finally, in conclusion, the contract between Keith and Tuan was a valid contract and as the terms of contract both parties had the exemption clauses which were Tuan cannot buy from other suppliers and Keith had to provide the goods with satisfy quality. However according to the UCTA and Sale of goods Act; Keith had breached the contract by supplying the goods with poor quality. Furthermore under the test of reasonableness and fairness, it was reasonable for Tuan to breach the contract without any responsibilities to Keith. So in this case Tuan was able to breach from the contract and he would be buying his plaster in future from Fred, who had indicated that he would supply the plaster at $4,500 a ton.
However in this case there was also an influence of the law of 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). The terms in standard form can be in three types which are express term, implied term and innominate term. Firstly an express term is a clear stipulation in the contract (they are terms of the contract and may choose to do so orally, or in writing, or in a combination of these methods.) which the parties intend should be binding upon them. Traditionally, the common law had divided terms into two categories: conditions and warranties (Doti Chee, 2009). Condition is a term which is vital to the contract, going to the root of the contract. While warranty is a less important term, it does not got to the root of the contract but is subsidiary to the main purpose of the agreement (BPP Professional Education, 2004). A breach of condition will entitle the injured party to repudiate the contract and claim damages. A breach of warranty will only give the injured party the right to claim damages; he cannot repudiate the contract (Doti Chee, 2009).
On the other hand some undertakings may occupy an intermediate position, in that the term can be assessed only in the light of the consequences of a breach. If a breach of the term results in severe loss and damage, the injured party will be entitled to repudiate the contract; where the breach involves minor loss, the injured party's remedies will be restricted to damages. These intermediate terms have also become known as innominate terms (Doti chee, 2009). The last type of term is implied term. It is a term which, although not expressly stated by the parties by words or conduct, is by law deemed to be part of the contract. Implied term is o
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