General Concept and Aspects of Contract and Negligence for Business - Essay Example

 Aspects of Contract and Negligence for Business Task 1 P1 In order to form a legally binding contract, there has to be a legal offer. A legal and proper offer is made when it is communicated to the offeree. It should not be loose, vague or uncertain. For instance, an offer to conduct business till such time that it is profitable is not a valid offer because of the uncertainty of time. It is also important to differentiate offer from invitation to negotiate and invitation to offer. It is not essential that the person who starts the conversation relating to a transaction is the one who has made the offer. Preliminary discussions are very common in business. For instance, A asks B, “Are you interested in buying this house?” A has not made an offer but is merely asking B if he is interested in making an offer. B replies, “I’ll pay you £50000” for this house.” B has made an offer to A and A is at liberty to accept or reject it. In a market where various articles are marked for prices, the marking of price does not mean that the sellers have made offers to sell these items. These are merely invitations to offer. The sellers can refuse to sell these items despite the goods being marked for price. Communication of offer means that it should be made known to the offeree. The mere desire of entering into an agreement, which is never mentioned to the offeree and remains hidden in the recesses of one’s mind, can never be regarded as an offer. Similarly, when an offer is made through a letter, it is not regarded as an offer until the letter is posted and it reaches the offeree. Also, the offer must reach the offeree through the offeror or his duly authorised agent. If the offeree comes to know of the offer through some outside source, the offer is not valid. An offer can be made generally to public through newspaper. But if it is intended for a particular individual, it should be made directly to that individual. Once the offer is made, it needs to be accepted by the offeree for the formation of an agreement. It must be absolute and unqualified. There must be consensus ad idem i.e. both parties must agree to the same thing in the same sense. This means that the offeree should agree to all the terms of the offer. A qualified acceptance is not a valid acceptance. It is regarded as a counter-offer and it terminates the original offer as soon as it is made. If the original offeror agrees to the terms of the counter-offer, an agreement is created. Acceptance should be communicated to the offeror. If the offer includes the term that acceptance should be made through a specific mode, it should be made in that mode only. The offeror is at liberty to terminate his offer at any time before it is communicated to the offeree. Consideration is also very important for the formation of an agreement. A promise is made by the parties to do something in return of something. This ‘return of something’ is known as consideration. The doctrine of consideration is one of the most important tests of whether a promise is worthy of being enforced by law. Both parties to a contract must gain some benefit from the contract and must suffer a detriment. The consideration does not need to be adequate. The law does not compensate for a bad bargain. However, the absence of consideration makes a contract void. There must also be an intention to create legal obligations. An agreement becomes a contract only when it becomes enforceable by law. Social agreements and agreements made in jest are not made with an intention to create legal relations. Domestic arrangements between husbands and their wives are not considered as contracts because of the lack of intent to create legal relations. However, when a couple separates and an agreement is made according to which the husband agrees to pay his wife monthly, the agreement becomes enforceable by law because legal relations are created. Other essentials of contract include the capacity of parties (none of them should be a minor or of unsound mind) and legality of purpose (the subject matter of the contract should be legal). P2 Simple Contract A simple contract consists of an offer, acceptance, consideration and legal relations. It may not even be in writing unless it involves a transfer of land. A simple contract can be a routine transaction at a shop where a customer purchases different items. When the customer picks up an article and takes it to the register, it is an offer. The accepting of money in exchange for the article is the shopkeeper’s acceptance. The article and the money are consideration for the respective parties. Also, there is an intention to create legal relations as the customer has a right to get the article replaced if it is defective. Therefore, simple contracts involve simple transactions and straightforward promises to do something in return of something with an intention to create legal relations. Contract by Deed Contracts by deed are those contracts that must be in writing and be signed by the parties involved. They may also have witnesses and a seal. These contracts may also be known as specialty contracts. There are certain contracts that can be made orally but they cannot be enforced by law unless evidence is produced in court in writing. Contracts of guarantee are required to be in writing and duly signed by all the parties involved. These are also known as warranty deeds. Deeds are essential for contracts in which property is the subject matter. Unilateral Contracts Unilateral contracts are those contracts in which the offeror asks the offeree for the performance of a certain act instead of a promise to do a certain act. The offeror makes a promise in exchange of the performance of that specific act by the offeree. The offer is deemed to be accepted only when the offeree completely performs the action that is requested by the offeror. For instance, A advertises that he would pay a reward of £100 to any person who finds his lost dog. A would be required to pay only that person who finds his dog. Further, offerees are not legally obligated to perform the requested action. However, if they do perform the requested action, they become entitled to receive the consideration offered by the offeror. For instance, if B finds A’s dog, B is entitled to receive £100 from A. If A refuses to pay the reward, B can sue A for the recovery of the sum. Such contracts are called unilateral contracts due to their one-sidedness. Bilateral Contracts In contrast, bilateral contracts are those in which both parties to a contract are obligated by a promise to another. For instance, A promises B to pay £10 if B would mow A’s lawn. If B agrees to mow A’s lawn, a bilateral contract would come into existence under which B would be legally obligated to mow A’s lawn and A would be legally obligated to pay £10 to B. There is no compulsion as to which promise is to be performed first. Major differences between bilateral and unilateral contracts are: a. Unilateral contracts are one-sided whereas bilateral contracts are two-sided. Only one party makes a promise in unilateral contracts: both parties make promises in bilateral contracts; b. Offeree is not legally obligated to perform the requested action by the offeror in unilateral contracts. In bilateral contracts, the offeree is legally bound to perform the action requested by the offeror. P3 Express terms of a contract are the terms that are expressly stated and mutually agreed by the parties to the contract. These are differentiated from implied terms which are not required to be expressly stated by the parties. They are automatically annexed to a contract by usage or by law. The express terms of a contract may also be put in writing and be signed by the parties. These terms can be classified into following categories: a. Conditions The terms of a contract that are essential to the purpose of the contract are known as conditions. Breach of a condition is tantamount to the breach of contract. It gives the aggrieved party a right to treat the contract as repudiated and claim damages. Condition goes to the very root of a contract and its breach defeats the purpose of the contract. This term is so essential to the contract that a party is expected not to enter in a contract at all if not for this term. In Poussard v Spiers, an opera singer entered in a contract to perform for three months. She fell sick five days before the opening night and had to be replaced. It was held that the singer was in a breach of condition as the opening night was the most important night as all the publicity and critique was to be based on that night. In cases where there is a breach of condition, the aggrieved party has a right to treat the breach of condition as a breach of warranty and not treat the contract as repudiated. b. Warranties The terms that are minor and do not go to the root of a contract are called warranties. These terms are not such that would stop a party from entering into the contract if they are not agreed upon. A breach of warranty does not give a right to the aggrieved party to treat the contract as repudiated. It can only claim damages as a result of this breach. In Bettini v Gye, an opera singer entered into a contract to perform for a three month period. He fell sick and missed 6 days of rehearsals. His employer replaced him with another singer. It was held that missing the rehearsals was a breach of warranty and not a breach of condition. Attending of rehearsals did not go to the root of the contract. It was a minor term which did not give the employer a right to treat the contract as repudiated. c. Innominate terms Innominate terms are those terms about which it is determined by the courts whether they are conditions or warranties. The courts look whether a breach of this term has deprived the innocent party of substantially the whole benefit of the contract. If the innocent party is deprived substantially of the whole benefit, it gets the right of treating the contract as repudiated. However, if it is not deprived substantially of the whole benefit and treats the contract as repudiated, the innocent may be held be liable for wrongful repudiation. The innominate term approach was established in the case of Hong Kong Fir Shipping v Kawasaki Kisen Kaisha. In this case, the defendants were held liable for wrongful repudiation when they cancelled a contract in which a ship, chartered to the defendants for a 2 year period, ceased to be seaworthy for a period of 20 weeks. The courts argued that the breach did not deprive the defendants substantially of the whole benefit of the contract. References Bettini v Gye [1876] QBD 183 Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 Poussard v Spiers [1876] 1 QBD 410 Read More