Aspects of Contract and Negligence of Business - Assignment Example

Unit 5: Aspects of Contract and Negligence of Business 5 1. Explain the importance of the essential elements required for the formation of a valid contract. In any business venture, there is an existing agreement between the owners and other individuals. Although oral agreements are made based on trust and confidence, it is the existence of written agreement that formally binds individuals with a business during its operations. Unlike oral agreements, in written contracts there is less need of the parties to rely on memory and misunderstandings can be avoided. Legal documents are produced so that expectations of different parties can be explicitly stated so as to avoid confusions and legal complications if any adverse situation occurs. Valid contracts act as tools for a business enterprise that can be used as defence mechanism to protect its resources. Contract is essentially a promise between two or more parties, and the promise is legally bound with the implication that court of law will intervene in case there is any breach of the promise (Ryan, 2005, p.3). There are various essential elements for the formation of a valid contract. First of all, there must be an offer made by one or more parties and acceptance of the offer by other parties. An offer is a legally bound promise which means all the terms and conditions attached to the offer have been accepted by both parties. Acceptance occurs when the party responding to the offer expresses agreement to the offer, and the acceptance must be explicit and unequivocal as law will not consider an offer as accepted merely because it has not been expressly refused. There must also be a clear intention of both parties to enter into a legal relationship. The parties to the contract should also be capable to enter into a legal relationship like the involved persons should be adults, mentally fit, and mentally alert so that they are aware of the terms and conditions of the contract. A person is considered an adult when he or she is of legal age requirement. In most countries the legal age requirement is 18 years. A person is not considered mentally fit if he has been declared mentally incompetent by the court. Finally, a contract signed by an intoxicated person is not considered as valid contract since such a person is not mentally alert to become aware of the terms and conditions of the contract. There should also be free consent from both parties, i.e. neither party should force the other party to enter into a contract. When a valid document is signed it becomes a legally bound contract and is assumed that all the terms and conditions have been understood by both the involved parties. 5.1.2. Discuss the impact of different types of contract. A contract is made up of various terms and conditions, all of which form a complete and legal contract. In any contract, there is possibility that the involved parties will make different kinds of statements regarding different terms in order to encourage the other party to enter into the contract. Such prolonged discussions can cause confusions later on as to which terms should be considered as part of the contract and which terms were only parts of the discussions prior to the signing of valid documents. In any legal contract, the involved parties are legally bound to abide by only those terms and conditions that are parts of the contract and not by any statements made during pre-contract discussions. A contract can be classified into two types – unilateral and bilateral. In a unilateral contract, two parties enter into a legal contract wherein one party agrees to perform an act against promise of payment from the other party. In this type of contract, it becomes valid only when the party who has been requested to perform a certain act has performed that act. This means in a unilateral contract only the person who has requested for the act is under legal obligation. Advertisements are considered as unilateral contract. In a bilateral contract, two parties enter into a legal contract wherein each party promises to perform an act in exchange of the other party promising to perform another act. Unlike a unilateral contract, in a bilateral contract both parties are under legal obligation and any one party can ask for legal remedies if the other party fails to keep promise (Helewitz, 2010, pp.6-7). There are also types of contract based on their formation. Accordingly, a contract may be expressed or implied. In an expressed contract, both parties enter into a contract with explicit terms and conditions which are manifested orally or in written documents duly signed by both the parties. In an implied contract, it comes into existence only after certain acts are performed by the parties. For instance, when customers buy products they are obliged to pay for them. This is an implied contract since the contract occurred when the purchase was made, and no prior agreement was needed. In English contract law there is innominate term which is an intermediate term between condition and warranty. In this case, if a condition is breached then the consequences will be the deciding factor whether the defendant can claim damages or terminate the contract. A comparison below is made between property contract, phone contract and car rental agreement. Property contract Phone contract Car rental agreement The contract is between a landlord and tenant The contract is between a telephone company and a customer The contract is between a car owner and a renter The tenant must pay a deposit of one month in advance The customer doesn’t pay a deposit Renter is required to provide a security deposit to the owner The length of the tenancy must be at least 6 months The length of the contract must be at least a year The terms of a car rental agreement run from the date and hour of vehicle pickup until the return of the vehicle to the owner, and completion of all terms of the agreement by both parties, as stated in the contact. The parties may shorten or extend the estimate term of rental by mutual consent. The tenant is responsible for any damages in the house The phone company is not liable if the phone screen is cracked In the event of damage to the rented vehicle, owner will apply the security deposit to defray the costs of necessary repairs or replacements. If the cost exceeds the amount of the security deposit, renter will be responsible for payment to the owner of the balance of this cost. The tenant must pay the rent between the first five days of the month usually from first to fifth of each month The customer agrees to pay payments within seven days of the due date on his/her bill. Renter pays the fees to the owner. Fees include base fee, fuel, excess mileage and the security deposit. 5.1.3. Analyse terms in contracts with reference to their meaning and effect. In a legal contract, there are various terms that define the roles and responsibilities of the parties to the contract. First, there are conditions which are those elements that are decided by the parties regarding the things that need to be done, the process of fulfilling the contract, and under what circumstances. Conditions can be both expressed or implied. Expressed conditions are those rules and regulations that are explicitly stated orally or in the written document. Expressed conditions do not lead to confusions and are easily defendable in a court of law. In implied contracts, there are some conditions which are not explicitly stated in the contract papers but are nevertheless considered as included in the contract mainly because absence of such conditions do not make commercial sense of the contract. Implied contracts can be of two categories – implied by fact and implied by law. Implied by fact means conditions that are obvious and need not be explicitly stated in the contract. For instance, when a consumer buys a product it is implied by fact that the product has to be in good quality and fit for use, or else the consumer can demand a refund. In another instance, when a seller shows a sample of a product and based on that the buyer places order of 50 pieces of that product, then it is implied by fact that all the pieces will be of same quality as the sample shown to the buyer. In implied by law, the court establishes a fictional contract to provide justice to the injured party. For instance, if a person is injured in an accident and a doctor present in the place treats the injury, then the doctor can ask for payment. The injured person may refuse to pay but court will consider that the person has been unjustly enriched by the doctor’s services. Second term is warranty which is actually not an essential term of a contract. When a warranty is broken, the affected party can ask for compensation but cannot invalidate the contract. 5.2.1. Apply the elements of contract in given business scenarios. The situation here is that I am working in small family run ‘estate agents’. Until now, while letting properties, management did not feel the need to create appropriate agreements. I have been asked to investigate this issue and develop procedures which will enable the company prepare and enforce suitable ‘lettings contracts’. A real estate contract is a legal agreement between two parties where one party offers to sell his or her house or land, and the other party offers to buy the house or land. In any real estate contract there are many formalities that need to be abided by along with filling up of documents. Therefore, presence of a lawyer is important while dealing with real estate agents. There are various elements that need to be carefully considered while entering into a real estate contract. One common issue is that when people decide to buy a real estate property they often obtain a mortgage, and their payment offer is dependent on getting finance at a certain rate of interest. Therefore, it is important for the real estate agents to enquire beforehand the financial condition of the buyer. Since if the buyer is paying all cash and is not dependent on loans, then it is less likely that the buyer will back out of the offer and therefore the deal becomes more attractive. Secondly, there are many closing costs attached with a real estate contract. For instance, when the deal is regarding sale of a house there are many associated costs which are to be borne by the buyer, seller or both like escrow fees, notary fees, transfer tax, etc. It is important that the parties decide between themselves before signing the contract papers that who would pay the closing costs. Third, it is important that real estate agents have full information about the condition of the concerned house since the buyer has the right to inspect the house which can also be stated in the contract papers. This clause will permit the buyer to refuse to close the deal if the inspection reveals requirement of expensive repairs. Finally, the real estate agents need to fix a closing date that is convenient for both the buyer and the seller. Usually, the seller would want to have a short closing date like two weeks but this may not be convenient for the buyer who may need time to arrange finance and find a new home. Although there are many other elements that need to be considered, it is prudent for a real estate agent to ensure that nothing important is left out of the contract. After all, good deals will attract more clients to the real estate agency. In any real estate contract where the buyer is paying on an installment basis, the property is immediately possessed by the buyer after the payment of first installment. However, the seller does not transfer title of ownership to the buyer till the full and final payment is made after which the contract is closed. 5.2.2. Apply the law on terms in different contracts. Like any other contract, real estate contracts can be valid, voidable or void. They can be unilateral or bilateral and expressed or implied. A real estate contract can be valid if it fulfils all the legal requirements like the parties are of legal age, sound mind and not intoxicated at the time of signing the legal documents. A void contract is one in which one or more legal requirements are absent and therefore it is not able to bind any party to the contract. A voidable contract is one that is valid for one party but the other party can render it voidable and therefore liberate himself from the contractual terms and conditions if he can prove that he was not aware of the terms of agreement for reasons like he was intoxicated. Moreover, a real estate contract can be unenforceable by a court of law if the legal documents are not duly prepared. For instance, two parties make an agreement regarding sale of a house but do the agreement orally. Then the contract will be valid even though there are no legal documents. However, in this case the court will not recognize the rights of either party for the obvious reason that neither party can prove the agreement in court. A real estate contract is executory as long as the parties are in the process of completing the contract like a sale of house contract is executory as long as final payment is not made by the buyer and title of ownership is not transferred by the seller. A real estate contract is executed or completed once final payment is done and title of ownership has been transferred. Real estate contracts also need to have all the requirements of any other contract like there needs to be an agreement which means an offer has to be made by one party and it has to be accepted by another party. An agreement is reached when all the terms and conditions are agreed by both parties. The offer can become terminated under several conditions – if the seller decides to make a counteroffer which is rejected by the buyer, if the buyer rescinds the offer before the seller accepts it, if the time limit of the offer gets over, if the seller refuses to accept the offer which means there is no acceptance and hence there is no contract, if natural disasters or other circumstances make the offer void. Both the parties in real estate contract have to be legally competent like they need to be of legal age, they are not intoxicated when signing documents, and they are not mentally unstable or declared the same by the court. Also, in a real estate contract there has to be considerations like mutually exchanged promises, i.e. seller will promise to sell a property and buyer will promise to pay price for the property. There also has to be reality of consent which indicates absence of error, misrepresentation, fraud, and undue influence. Error means unintentional incorrect information about the parties in the agreement. This can be both unilateral like false information given by one party or bilateral like false information given by both parties. Misrepresentation or fraud is deliberate concealment of facts by one or both parties. In case of error or misrepresentation the contract can become void only if the false information is considered important enough by either party when reaching a decision. It is most often difficult for the buyer to become aware of the seller’s misrepresentations until the buyer takes possession of the house like state of repairs, boundary line of the house, costs of repairs, drainage system, etc. Under common real estate contracts, the responsibility lies in the hands of mainly buyer like seller has no duty to reveal all facts but buyer has duty to investigate all information. However, most buyers are not qualified enough to make enquires about every detail, and so the real estate agent should guide the buyer accordingly. Therefore, when the buyer feels cheated out of true information, he or she can sue the real estate agent since it is the latter’s duty to convey all necessary information to both parties (Carper & McKinsey, 2011, p.549). Therefore, the real estate agent should make all efforts to learn all facts from both parties and take care to investigate the authenticity of all the facts. Undue influence means one party exerting pressure on the other party like seller taking advantage of his economic power to threaten owner of a property to sell the property. There is also the effect of legality of purpose in a real estate contract. If the promised actions are not legal or ethical then the contract becomes void in the eyes of law. For instance, if a contract is to convert a residential house into a retail shop in a residential demarcated area, then that contract is considered void. Finally, a real estate contract like any other contract becomes enforceable in court only if the agreement is in writing. Oral agreement though valid has no recognition in the eyes of law. 5.2.3. Evaluate the effect of different terms in given contracts. For a successful negotiation of property it is important that buyers and sellers find a competent real estate agent. A real estate agent performs all the myriad real estate formalities to ensure that his or her clients get a good deal. A good and competent real estate agent helps in marketing the property that is for sale, finding another good property for the seller, communicating with other real estate agencies, and also helps clients to understand all the required documents. The Estate Agents (Professional Conduct) Regulations Act 1980 states many responsibilities of real estate agents or brokers when selling or buying a house. The first responsibility of real estate agents as required by law is that they should approach all the involved parties with total honesty and due diligence. It is also the responsibility of the real estate agents to maintain confidentiality regarding financial or any other information about the parties. The real estate agents also cannot discriminate in the offering of properties. They must promptly provide all the parties the required documents that will contain all the clauses regarding the offers or counteroffers made by each party. It is also the duty of real estate agents to reveal to the parties, especially the buyer, all details about the concerned house like whether it needs to be repaired and if so how much is the estimated costs. The rule of confidentiality is not extended to the act of disclosing all facts about the concerned house. The real estate agent needs to ensure that his or her duties and responsibilities are explicitly mentioned in the agreement made between the agent and the parties. In the agreement, the fees of the agent should also be mentioned. It is however the responsibility of the parties to understand all the terms and conditions of the agreement, and the real estate agent is liable to inform the client only about real estate matters, and is not liable to provide any legal or tax advice (Crawford & White, 2001, p.39). In the case of a car rental contract, the car owner needs to ensure that the renter has a valid driving licence. Other than this, the owner rents the car providing the renter will not use the car for 1) transporting people or property for hire, 2) participating in any car race, and 3) pushing or pulling any other vehicle. Moreover, the renter will be liable to compensate for damages caused by driving in an inebriated state or if the odometer has been damaged by the renter. Renter is also liable for compensation if he is not of legal age for driving or has damaged by car by driving on roads that are not properly maintained. It is also the responsibility of the renter to return the car in the due time and in the same condition the car was rented. In case of late return, the owner may charge extra fees. 5.3.1. Contrast liability in tort with contractual liability. Tort liability is caused when there is negligence of duty on the part of one party that can cause harm to another party’s property or legal rights. Tort means wrongful act as per civil law and the injured party can sue the other party in a civil court for monetary or other compensations. Today, most tort liabilities are caused by accidental actions like unintentional damage caused to a car by the driver. There can be several examples of tort liabilities like accidental spilling of drinks by a waiter on a customer in a restaurant. Contractual liability occurs when one party violates the terms and conditions of the contract and the injured party can claim compensation in the court of law even if no actual loss has happened. For instance, in an international restaurant a customer paying less for services he received from the waiters during the conduct of a party by the customer. Since the restaurant is responsible for providing proper services to its customers, the customer will be breaking terms and conditions of contract if he refuses to pay the total amount even after receiving satisfactory services. In a real estate contract, if an act of negligence by seller causes emotional distress to the buyer like failing to inform to the buyer about faulty drainage system in the house, then the buyer can demand punitive compensation. Tort liability can be imposed on a real estate agent if he fails to inform the buyer about necessary repairs and defects of the house even if the agent is an honest person and has made best efforts to get full knowledge about the condition of the house. Tort law views imposition of liability as result of gross negligence rather than external assessment of behaviour. In case of contractual liability, it occurs between the parties of a contract. In case of tort liability, a person has duty toward everyone like he or she cannot trespass in others’ properties or cannot defame another person. One example of a UK based tort case is Jones v Powell (1629). In this case vapour that emitted from a brewery spoiled books and papers of a man who lived beside the brewery. He sued the brewery demanding compensation for his damaged goods. However, he lost the case since the court declared that good quality liquor is important for society and the loss of books and papers is a minor offence. 5.3.2. Explain the nature of liability in negligence. In any contract, negligence can occur when one or both parties fail to take proper care to ensure that no physical or economic loss befalls the other party. It is not technically a breach of the contract and hence is not a criminal offence but a civil offence. It is the responsibility of the injured party to prove in court that any physical or economic loss that he has to be endure has been caused by negligent actions caused by the other party. The injured party has to prove that the other party had the duty to take care so that no loss will occur, and that duty has been breached. For instance, any restaurant is responsible for providing food that is cooked in a clean and hygienic manner. Therefore, according to Consumer Protection Act 1987, in UK if a customer gets food poisoning after eating food from a restaurant then he does not need to prove negligent actions by anyone but that he has fallen ill after consuming food from the restaurant. In a real estate contract, negligent acts will be caused by the owner of a house if he does not make his property gas safe or refuses to repair anything that can cause harm to the tenant like a faulty smoke alarm. Similarly, negligent acts will be caused by the tenant if he fails to pay rent or electricity bills, or causes damage to the property. In such cases the owner can ask for compensation or can kick him out. 5.3.3. Explain how a business can be vicariously liable. In real estate law, parties of contract can be liable for any negligence or misconduct by their agents. This is known as vicariously liable. For instance, in a restaurant a bartender’s negligent acts can cause injury to a customer if the latter becomes too much intoxicated. In such case, the customer can sue the owner of the restaurant for the fault of the bartender. Similarly, between a tenant and landlord, if the tenant’s dog bites someone then the injured party can sue the landlord. Therefore, vicarious liability is liability of one person caused by negligent acts of another person. However, in many regions vicarious liability is imposed only under limited circumstances. According to Corporate Manslaughter Bill (2005), a company can be held legally liable for compensation if injury is caused to its employees by acts of negligence from senior management (Cassidy, 2006, p.44). 5.4.1. Apply the elements of the tort of negligence and defences in different business situations. Business situation 1: According to the theory of tort law, Mr. Mark Patel is liable for the physical discomforts caused to the students. Since the injured party is students therefore Patel is liable for his negligence to maintain the property on regular basis. Business situation 2: In any restaurant, it is implied that customers will expect food cooked in hygienic conditions. Therefore, in case of food poisoning the injured customers can claim compensation from Mrs. Pam Young as per tort law. 5.4.2. Apply the elements of vicarious liability in given business situations. Business situation 1: Mr. Mark Patel will have vicarious liability for negligent actions caused by his staff who are responsible for regular maintenance of the house let out to students since it is Patel’s responsibility to supervise his staff. Business situation 2: It is obvious that her cooks fail to cook food in hygienic manner and her other staff fails to maintain cleanliness in the restaurant. However, being the owner of the restaurant, Mrs. Pam Young’s responsibility is proper supervision of her staff. Therefore, Mrs. Young will have vicarious liability for negligent actions performed by her cooks and other staff. References Carper, D. & McKinsey, J. (2011) Understanding the Law, Cengage Learning Cassidy, J. (2006) Concise Corporations Law, Federation Press Crawford, H.W. & White, D.A. (2001) Maryland Real Estate: Practice & Law, Dearborn Real Estate Helewitz, J.A. (2010) Basic Contract Law for Paralegals, Aspen Publishers Ryan, D. (2005) Essential Principles of Contract and Sales Law in the Northern Pacific, iUniverse Read More