Aspects of Contract and Negligence of Business in Everyday Operations - Case Study Example

Aspects of Contract and Negligence of Business Name Institution Aspects of Contract and Negligence of Business Part I: Elements of Contract Essential Valid Contract Elements The contract between Woohoo Wholesale (WW) and Provident Solutions (PS) was an invalid one. It did not meet several elements of contract validity. i. Competent Parties and Lawful Subject Matter A contract must be between parties competent to be contracting or contracted. In this respect, a party is considered contract-incompetent if it has not legal capacity to incur voidable contractual duties. Determining the competency to contract is based on the facts of the contract itself (Mohart, 2007). In this case study, WW, on one hand, had a valid need for computers and software (to improve stock management). But most importantly, it had the financial capacity to pay for the supply of these. On the other hand, PS, by WW’s evaluation, had the capacity to provide what is required: computers and software; the quality required; the number needed; and in time, among others. However, it lacked the capacity to provide updated software. It therefore sub-contracted Clive Software Ltd. Clive lacked the capacity to provide up-to-date software and in time, which led to unwanted delays. Even after the software was installed, it continued to have problems. ii. Consideration The contract bargain theory asserts the premise that a contract is essentially an agreement between parties where each gets something in return for his or her promise” (Mohart, 2007, p.2). Therefore, the contract must contain a provision obliging the offeree to promise the offeror something in return for the offer. This is what is known as ‘consideration’. Consideration may be in the form of financial payment, delivery of property and service performance, among others. For instance, PS’s final quotations outlined the price WW should pay for its services (1.3 million Pounds) and promised to reimburse all WW’s legitimate expenses if both parties do not agree on a formal contract. The quotation also emphasized the need for the signing of the formal contract by both parties for the contract to be considered effective. WW on its part agreed to the terms but expanded the scope of conditions if the two parties fail to agree on a formal contract. Besides reimbursement of legitimate expenses, it also inserted it would “claim a reasonable amount of the profit we would have made had the contract been installed”. iii. Mutual Assent Consideration is only a proposition. Otherwise, the parties involved often go through a period of negotiations (bargaining) until they arrive at a central point upon which they can agree. When that point is reached, both parties have arrived at a point of mutual assent (Mohart, 2007). In this case, during the period of negotiation, PS sent a series of quotations to which WW did not agree. Finally, PS sent a final quotation (NUMBER 421) whose particulars have been discussed above. Most importantly, though, both parties never got make a final agreement. They continued to work on the contract despite the fact that PS never responded to WW’s expanded scope of claims should the contract fail to come to fruition. iv. Offer and Acceptance Ultimately, a contract is considered valid if both parties accept each other’s offers. This is based on the price quotations and claims for liability outlined in the contract, among others (Mohart, 2007). Both parties in this case study did not accept each other’s offer. As already noted, WW did not completely agree with PS’s final quotation, making changes on the conditions for liability claims. However, PS never got to agree or deny that addition, which means that the contract remained in some sort of limbo throughout the process. Standard Form Business Contracts: Relative Importance of Express Terms, Implied Terms and Exclusion Clauses The standard form contract, as the name suggests is that form that contains all the elements of a contract between the parties involved. Although these differ from one contract to another, there is a general content format in all contracts: The parties involved: These are the parties that have made a contract. In this case, there is the main contract between WW and PS, as well as the independent subcontract between PS and Clive. The obligations of each party: This is about the roles and responsibilities of both parties in the contract The business deal: That is, what the contract is all about. These include what an organization wants from the supplier. In this case study, the contract is over the supply of computers and software by PS to WW. The subcontract is for Clive to provide the software to PS. The price: This is what the contract is worth to both parties in monetary terms Contractual change procedures: This addresses potential changes to terms of contract (based on macro- and micro-environmental factors, technological changes, etc). This includes who is allowed to initiate changes and what procedures to follow to do this, among others. Terms of breach: That is, what happens is any of the parties the terms of the contract Other contents include billing procedure and methods of payment, among many others. Generally, the contents of a standard form contract are express terms, implied terms or exclusion clauses, each with its own benefits to the contract. Express terms are concrete. The WW/PS contract, for example, is very specific on price (1.3 million), as well as the terms for reimbursement, among others. Express terms are helpful in solving contract breaches and cases of liability as there is a source of reference. However, a contract cannot contain every potential issue that may arise. This is perhaps what West and Lewis, Jr. (2007) mean when they pose the question, “Can your contractual deal ever really be the ‘entire’ deal?” (p.999). Implied terms (based on common sense) protect the parties involved from unforeseen problems that may not arise. For example, despite business lawyers incorporating well-defined limitations to liability in the written agreements the negotiate, most contracting parties can attempt to “circumvent those limitations by premising negligent misrepresentation and tort-based fraud claims on the alleged inaccuracy of both purported pre-contractual representations and express, contractual warranties” (West & Lewis, Jr. (2007, p.999). This is a common strategy for counterparties trying to avoid their contractual obligations. Different Types of Contracts and their Relative Legality Generally, there are two main types of contracts: express and implied. In an express contract is where the terms have been expressed in words (verbally or in writing). In implied contracts, the terms are not clearly stated in words. An implied contract can be implied either in law (quasi-contract) or in fact. ‘Implied by law’ contracts (quasi-contracts) are means by which courts resolve situations where one party seems to benefit unjustly from a relationship in which the party in question is not required to compensate the other. In ‘implied by fact’ contracts, the circumstances show that parties have reached an agreement albeit not expressly. Of the two, express contracts have more legality that implied contracts. In other words, express contracts have terms clearly defined and explained. This means that there are explicit grounds upon which the courts can make clear decisions. However, in implied contracts, there are no such clearly defined terms. Therefore, although there are certain terms involved, these are largely subject to personal interpretation. The decision of the courts may not be easy to predict in this situation (Mohart, 2007). It is however important to distinguish between an implied contract and an express contract whose particulars have been ignored. For example, in the case study here, WW and PS seem to be working on the contract without signing to it. But this does not mean what they have is an ‘implied in fact’ contract. The two have simply ignored that part although the terms of the contract demand it. Therefore, while ‘implied in law’ contract is legal, the case of WW and PS is not. Conditions, Warranty and Innominate Terms and Remedies to Breach These are the three categories for the classification of the terms of contract. Conditions refer to the terms that the parties involved consider so important that they must be included in the contract. Conditions are breached when parties involved fail to perform them. To remedy a breach, the party whose conditions have been breached establishes in what ways the condition has or conditions have been breached. Once it has done that, it can choose between two options: terminate the contract entirely and sue for the damages; or affirm the contract (that is, continue to perform the obligations outlined in the contract) and sue for damages. It may also use other injunction options. For example, the party whose conditions have been breached can offer the other party the opportunity for remedy by proposing a corrective measure. For example, WW could suggest that PS install newer software versions. However, having decided that PS lacks the capacity to deliver to its needs, WW could also decide to terminate the contract with PS and enter a new contract with another company it considers to have the capacity to do what PS and Clive have failed to do (Heinze, 2005). In legal terms, warranties refer to the less important terms of the contract. This is different from the common usage in which the term refers to the benefits that come with purchases. When warranties are breached, the defaulted party can only sue for damages but not terminate the contract. Otherwise, it may also be sued for unjustified termination of contract (Heinze, 2005). Finally, innominate terms are those terms that lie between conditions and warranties. The breach of these contracts may have major or minor impacts on both parties. Generally, though, innominate terms are considered minor. Therefore, like the case of warranties, the remedy of innominate terms involves suing for damages but not contract termination. The party whose innominate terms have been breached may sue for specific performance issues (Heinze, 2005). But the distinction between these terms is not as obvious. To distinguish between conditions and warranties, for instance, involves determining whether the terms focus on the primary of secondary obligations of the contract. Second, the contractual intentions of the parties involved are also taken into consideration. The third consideration is the industry practices, as well as other background circumstances. But most importantly, it is necessary to find out what the country statutes expressly stipulate about certain warranties and conditions (Heinze, 2005). Part II: Liability and Negligence Liability under Tort and Contract Tort laws are different from contract laws. Basically, contract laws govern contractual agreements between business persons and organizations. In this case, contracts outline the duties and responsibilities of the parties involved to one another. On the other hand, tort laws govern situations in which one party has injured or harmed the other. Tort laws, therefore cover incidents in which one party has intentionally harmed the other. This often happens without a pre-written agreement between the two parties. This is why both tort and contract liabilities cover different areas, although they are also similar in certain areas (LaMance, 2013). Starting with the similarities, tort and contract fall under the ‘law of obligations’. In the former case, companies have the legal obligation to look out for the welfare of, say, the communities in which they operate and consumers. In the case of contracts, businesses have a legal obligation to meet their roles and responsibilities as outlined in the contract (express or implied) (LaMance, 2013). In the end, liabilities under tort and contracts are different. For one, there is the issue of consent. In contracts, a party is liable for breaching the terms of contract. In other words, there has to be a contract between them in the first place (that is, by consent of all parties). Liability in tort, however, does not require an express agreement between the two. In other words, torts operate on the basis of implied contracts. For example, a patient may sue a manufacturer of a drug for a health problem he/she suffered as a result of using the drug. In this case, there is no express declaration that the drugs must not harm the patients. However, it is a legally recognized fact (implied) that the drug should not cause any harm to the patient. Ultimately, although tort and contract claims are so different they are often filed separately, there are times when they may be heard together, especially where the tort affects the contract’s subject matter (such as a where fraud is part of a breach of contract) (LaMance, 2013). Trouble at Work Legal documents do not provide any clear definition of workplace bullying. However, there seems to be a general agreement over what workplace bullying- or any other type of bullying for that matter- entails: exclusion; assigning of unachievable tasks; spreading malicious gossip; undermining one’s integrity, among others. Moreover, harassment also falls under bullying. In this particular case, there are two parties that seem to have a case against equally two other parties. John Rodgers’ Case First, there is the family of John Rodgers. John Rodgers drank paint thinner to kill himself. This he did because apparently, he could not take the bullying he was suffering at the hands of Nathan Parker (a workmate) and decide to take his life to escape it. Rodgers’ family has two cases for liability here. First, there is the case of workplace bullying. Tony Smith, the construction site foreman, is aware of this but fails to take action. The first issue would be to check if the ABC construction Ltd. has any policies on bullying and harassment. If it does, then the issue falls under an express contract. This means that ABC expressly obliged itself to protect its employees from harassment. But even without such an organizational policy, ABC is still obliged to protect its employees from workplace bullying. This is vicarious liability. This refers to an organization’s legal responsibility to make efforts- that is, take all reasonable steps- to reduce liability. The definition of ‘all reasonable steps’ is not a general one (not by legislation). Instead, it is based on the uniqueness of each case (Beyer, 2006). However, the case is now under implied law. These two distinctions (that is, whether there is an expressed implied contract case here) significantly affects the likeliness of winning the case for Rodgers’ family. If the family can prove the bullying to courts, ABC would be liable for negligence. But it may be hard for Rodgers’ family to provide the evidence that he was bullied. Rodgers’ himself would have been a key witness but he is no longer there. Of the two cases (bullying and death), perhaps the one with the strongest ground is the one on death (also a case of workplace negligence). The problem, however, is that Tony Smith, as the foreman, did ring for an ambulance immediately. He did his part. But the ambulance delayed, arriving 45 minutes later (30-35 minutes later than the normal response time). By the coroner testifying that Rodgers’ would have had a 50/50 chance of survival had the ambulance arrived immediately, shifts liability to the ambulance. Williams (2007) cites the 2000 Kent vs. Griffith case in which England’s Court of Appeal held that ambulance services could be liable to actionable negligence if it unreasonably delayed response. But the problem would be proving whether the delay is unreasonable or not. In the end, sad as it is, Rodgers’ family might not have a case- at least not against ABC, which is actually the primary cause here. Bob Jones Bob Jones suffered a mild heart attack at the sight of John dying, blood coming from his nose and mouth. Although he was rushed to the hospital and made full recovery, he remains on heart medication and suffers from depression. The question here is whether Bob has a case against ABC. In other words, is ABC liable to compensate Bob for his condition? From a presumptuous perspective, it is possible that Smith’s (and ABC’s for that matter) negligence of Rodgers’ bullying at the hands of Parker is the cause of all this. It can be assumed that had Bob not seen Rodgers in the condition in which he found him, he might not have ended up as he did. However, this question is not as easy to answer as one may assume. For instance, the question is whether Bob suffered the heart attack because of the sight he witnessed or because of a mental illness that he never revealed to the organization. Besides, he is not the only one who saw Rodgers’ in his bloody condition. Smith did, too. Moreover, many people have seen perhaps even bloody scenarios without suffering a heart attack. So how come Bob is the one who responded as he did? Ultimately, though, the Bob’s case hinges so much on that of Rodgers’. He may not have a case against ABC if it cannot be proven Rodgers’ death was as a direct result of the organization’s negligence. Moreover, unlike Rodgers’ family, he may not have a case against the ambulance company either. Despite the ambulance’s relative lateness, Bob got to the hospital in time and recovered fully. A Road Too Far In this case, there are three parties that are likely to hold Top Tooling Plc liable for various cases: the pedestrian for injuries suffered after being struck by a van belonging to the company; and Sideline (Automation) for the problem on the climate control unit; and Frozone for warranty invalidation. Vicarious liability is also applicable in all these cases. Below are the possible responses of Top Tooling Plc to these three potential liability cases: Pedestrian The pedestrian will hold Top Tooling Plc liable for the injuries he/she suffered after being struck by the company van. As it were, the company cannot deny its relationship to Peter. However, the company has some grounds for not taking responsibility for what has happened and shifting it to Peter (as an individual) instead. The terms of work are that the van is exclusively for work. Although it is not expressly stated in the anecdote, the assumption is that ‘work’ here refers to the normal hours of work (probably between 8.00 a.m. and 5.00 p.m.). The company could allow overtime (that is, working beyond these hours). However, in such a case, there would need to be a clear proof that the employee was still under the control of the company despite the hours. In this case, however, Peter was not working for Top Tooling Plc. Instead, he was coming from a game he had been invited to by Mr. Pardeep. This was not part of his job. In other words, when he struck the pedestrian, Peter was not an employee of Top Tooling Plc., but an individual off work. That would mean that he should take the responsibility for knocking down the pedestrian. Sideline (Automation) Ltd Sideline might be having a liability case against Top Tooling Plc. Besides, the climate control unit was working fine until Peter worked on the production machinery. However, the case does not have much ground. First, in repairing the production machinery, Peter did not touch the climate control unit, so he or his company cannot be blamed for the fault. Second, it was Mr. Pardeep, Sideline’s production manager, who requested Peter to repair the climate control unit. That means that by working on the machine, Sideline entered an implied contract with Top Tooling- one in which the two parties assented to the latter repairing the former’s climate control unit. Moreover, Sideline might not be able to prove that Peter (Top Tooling) is directly responsible for the bigger problem. It might have been well on its way. In this scenario, it seems Sideline is as liable as Top Tooling could be. Frozone Mr. Pardeep tells Peter that Frozone is holding him liable for the problem with its climate control unit. He says to Peter, “the maintenance company … they claim you invalidated the warranty’. He adds, “You will pay for this.” It is not easy to tell who Mr. Pardeep refers to by ‘You’. But it is most likely that he refers to the company and not Peter as person. Realistically though, Frozone cannot exactly have a case against Top Tooling Plc.- at least not for the invalidation of warranty. The warranty is between Frozone and Sideline (Automation) Ltd. and not Top Tooling Plc. Therefore, between Peter’s company and Sideline, it is actually the latter that has invalidated the warranty by asking Peter to work on the climate control unit. References Beyer, D.A. (2006). Vicarious Liability, Florida: DLA Piper Heinze, E.Y. (2005). Conditions, Warranties and Innominate Terms- Different Terms for the Same? Sydney Law School LaMance, K. (2013). Contract and Tort Law, Legal Match Manesh, M. (2013). Express Contract Terms and the Implied Contractual Covenant of Delaware Law. Delaware Journal of Corporate Law, 38, 1-52 Mohart, C. (2007). Understanding Liability under Contract. Retrieved 23 June 2014, http://www.ksfa.org/index_files/Chris%20Mohart%20Understanding%20Liability%20Under%20Contract.pdf West, G.D. & Lewis, Jr., W.B. (2007). Contracting to Avoid Extra-Contractual Liability- Can Your Contractual Deal Ever Really Be the “Entire” Deal? The Business Lawyer, 64, 999-1038 Williams, K. (2007). Litigation against English NHS Ambulance Services and the Rule in Kent v. Griffiths. Medical Law Review, 15(2), 153-175 Read More