Corporate and Business Law - Essay Example

CORPORATE AND BUSINESS LAW Introduction Contracts form the basis of all understandings between individuals, corporations and any commercial entities that are doing business together. This therefore necessitates the need to delineate a contract form just mere talk between individuals. A contract involves two entities: two individuals, an individual and a corporation, two corporations. Secondly, for a contract to be binding there has to be a consensus of the minds between the two parties this is termed as an agreement between the two parties. This means that there has to be an offer which is followed by acceptance of the offer. Concurrently, a contract leads to formation of legally binding rights and obligations upon which the individuals are bound to adhere to failure to which leads to breach of contract that accrues damages depending on the court ruling1. With this genesis, this essay will inculcate the aspects of contract law with support of cases and also review the Sale of Goods Act 1979 in answer contract between Tim and ABC Ltd. Body A1. Whether the computer on display in the shop amounted to an offer to sell For an in depth understanding as to whether the computer on display in ABC Ltd amounted to an offer to sell, it is important to distinguish an invitation to treat from an offer to sell. An invitation to treat has been defined as including any negotiation statement that falls short of an offer and hence lengthens the bargaining process2. Goods displayed in the shop are regarded as an offer to treat and a contract is only arrived at once the goods are presented by the buyer at the cash point. ABC Ltd can use the defense of revocation of the offer. This entails a situation whereby an offer to sell is retracted before the offer is accepted. The law does not consider how far the negotiations have gone and therefore retraction of an offer is allowed as long as it is communicated. In Henthorn v Fraser3 revocation of an offer to sell needs to be brought to the mind of the person to whom the offer is being made. Despite it being an offer to sell, the offer was revoked prior to an arrival of a contract by ABC Ltd since the misprice was discovered at the cash point prior to the sealing of the contract between ABC Ltd and Tim4. A similar decision was arrived at by the court of Appeal in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd5. The outcome of this case for the defendant was important. This is since it was agreed at that by merely picking the drugs from the shelf; this did not amount to a contract between the two parties. However, a contract was arrived at when the goods were presented at the counter for sale and proper supervision was carried out. The same case applies to Tim and ABC Ltd, the advertisement displayed cannot be treated as an offer to sell by merely picking it but is an invitation to treat and will only bind into a contract once it is presented at the cash point as was done and the mistake corrected in due time. See also Fisher v Bell6. There are some exceptions to the rule of an invitation to treat where an advertisement is treated as an offer to sell. In Chapleton v Barry Urban District Council7 it was held that an attachment of price to a display of deck chairs was an offer to sell and not an invitation to treat. Subsequently, it was ruled that in a self service station, a contract is arrived at when the customer pumps the pump to fill the tank and not at the pay point. Though a weak form of defense, Tim may rely on the prospect that by ABC Ltd attaching a price to the computer, it served as an invitation to sell and not an offer to treat and hence ABC Ltd was liable for the misprice8. A2. Whether the manager’s statement of additional RAM was part of the contract The manager’s statement of additional RAM though not being right forms part of the contract. This is legally on the basis of actual undue influence as ascribed in Bank of Scotland plc v Etridge (No.2)9 where undue influence pertains to influence that has been misused. For undue influence to quality as litigation, the court needs to prove that a relationship existed that led to a bond of trust between the parties. In our case scenario, a relationship of trust and confidence can be depicted to have arisen following the manager Assuring Tim of the misprice and hence Tim could not dispute the availability of the additional RAM. As the manager of ABC Ltd, his position accrued him confidence and trust from buyers10. Secondly, for undue influence to serve as litigation, the party that exerted that undue influence must be shown to have gained from exerting the influence. In the case scenario, by ABC Ltd assuring Tim that the computer had additional RM, Tim bought the computer and hence the manager had gained since he got to sell the computer over falsified information. In addition, undue influence has to illustrate that the influenced party was prejudiced and that he had no independent advice. On this basis, Tim suffered losses as a result of relying on information of the manager but he had independent advice since he would have relied on the information as pertains to the details of the computer on the price tag, and he did not. Undue influence that meets all the above criteria is stipulated in McGillivray v Gilmartin11 where a daughter used undue influence to convince her dying mother to transfer property meant to her brother to her. The court in turn terminated the court terminated the contract. This means that the manager’s statement of additional RAM forms part of the contract though it qualifies as being actual undue influence to arrive at a contract12. Though the manager’s statement of additional RAM that did not exist influenced the contract between ABC Ltd and Tim, ABC Ltd is liable for misrepresentation. Misrepresentation in this case scenario is different form a statement of opinion since in this case, the manager of ABC Ltd is considered to have expertise information on the dealings of the company and hence liable for misrepresentation especially since the additional RAM was false, as held in Esso Petroleum Ltd. V Mardon13. This is since the person who expresses his view is viewed by the court as being in the best position to know the truth of the matter. In this case scenario, the manager will be viewed as the person with the best information as pertains to the computer since he is the one responsible for pricing and quality of products in ABC Ltd. In this bid, his statement of the computer having additional RAM forms part of the contract but on the basis of misrepresentation14. A3. Whether there is breach of contract. Available remedies to Tim. Whether Tim had any responsibilities in respect to minimizing his losses relating to claim of damages ABC ltd may defend litigation filed by Tim on the basis of breach of contract by avowing caveat emptor (buyer beware). This is defense used by seller on the prospect that buyers need to be cautious when they are buying goods and that the sellers should not be held responsible for damages arising as a result of reliance of information of their products. This was a ruling made by the court of appeal in Smith v Hughes15 in a case pertaining to the sale of oats. The plaintiff wanted to buy oats from the defendant and the defendant offered an exhibition of the sample of the oats he sold. On the day of the actual sale, the defendant did not sample the oats on the belief that the oats that had been exhibited were the same sold to him. However, upon sale, he discovered that the defendant has sold to him old oats and sued the defendant for breach of contract. The court of appeal ruled that the plaintiff should not have just relied on the information by the defendant but should have examined the oats again. On this basis, ABC Ltd will rely on the prospect of caveat emptor as a way of shifting the blame to Tim who should have read the details of the computer from the price tag, and not relied on the manager for information as pertains to the computer. This would mean that there was no breach of contract16. However, breach of contract would be arrived on the basis of actual undue influence and misrepresentation foretold. On these grounds, available remedies to Tim will be damages and rescission. As pertains to rescission, the court aims at rescinding the contract (cancelling it) and returning the aggrieved party to the position that he was prior to the breach of contract. However, this form of remedy does not affect the rights of the third party. This means that Tim is not cushioned from the breach of contract with the third party who in this case is the client he was intending to make a report using the crashed computer. However, this remedy can be lost secondary to delay in exercising the court case as ruled in Leaf v International Galleries17 where delay in discovering the paint sold was not a genuine product could not accrue rescission as a remedy. This therefore means that for Tim to acquire rescission as a remedy, he has to be fast in filling litigation against ABC Ltd18. The second from of remedy available to Tim from ABC Ltd is damages. This is where the aggrieved part seeks monetary compensation for the loss suffered as a result of dwindling in the value of the item bought by the aggrieved party. The amount of damages to be paid to the aggrieved party is calculated on the basis of the law principles governing the aggrieved parties. Only the original price of the item is available for damages compensation regardless of the item having reduced value or having appreciated. However, the claim for damages requires an illustration that the aggrieved party minimized losses accrued as a result of entering breach of contract by the other party. Mitigation of loss is defined in British Westinghouse Electric and Manufacturing v Underground Railways Company of London19 as an action reasonably carried out by an individual during the course of business to minimize the loss accrued as a result of breach of contract. In this case scenario, Tim did not make any reasonable effort to minimize his losses since following the machine frying, he did not seek for an alternative, and rather he preferred to cancel a $ 725 worth contract. This entails that Tim did not try to mitigate his loss and hence he is responsible for compensating the losses that his client suffered as a result of termination of the contract and ABC Ltd was not liable of compensating Tim’s client20. A4. Whether Tim has any rights under the Sale of Goods Act 1979 Sale of goods Act outlines that a contract of sales of goods occurs when the seller transfers property to the buyer for a monetary consideration known as the price. This means that exchange of money for the computer between Tim and ABC Ltd accounted to sale of goods as outlined by the Act. The contract to sell may either be verbal or written, in the case scenario, the contract of sale between Tim and ABC Ltd was written as a result of issuance of the receipt21. The Sale of Goods Act 1979 outlines four main protections for buyers. To begin with, the seller has to have a right to sell the good to the buyer22. In the case scenario, the manger of ABC Ltd by the virtue of being an employee of the organization had the right to sell the computer to Tim at the retail price and not misprice to attract customers and then sell to the faulty commodities23. Secondly, the sale of Goods Act 1979 cushions the customers by providing that goods sold by description have to correspond with the description of the goods prior to sale24. In the case scenario, this did not meet the requirements of the Act since the computer did not have additional RAM as the manager had told Tim it would have. The Sales of Goods Act therefore provides that Tim needs to be compensated by the seller for the mismatch in description25. Moreover, the Act provides that the goods sold must be of satisfactory quality26. This protects the buyer from the purchase of goods that are below the quality outlined and hence protects Tim from damages accrued27. On the basis of the three outlines, Tim has the right to claim for damages as his protection by the Act was violated. A5. Explanation to the manager as pertains to the legality of his refusal to provide refunds for faulty goods The manager as a business man owes duty of care to all his customers. This entails that he is bound by law to provide goods that have the best interest of his customers at hand. However in the case scenario, the manager of ABC Ltd sells faulty goods knowingly and dopes not refund his customers, meaning that he is defrauding his customers. It is indeed important that the manager be held legally responsible for failing to give refunds for faulty goods, and he be compelled to sell quality goods to his customers28. Conclusion Contract law and sale of goods Act are interrelated and work to salvage the contract arrived at by entities in the performance of business activities. They protect the rights of customers and ensure that the sellers are legally bound by their commitment in the contract. In the case scenario discussed, undue influence, misrepresentation, buyer beware, remedies for breach of contract, and obligations of a seller have been evaluated. The sale of goods act has also been expounded in bid to illuminate the rights and obligations of entities selling and buying goods from each other. It is through this that a contract has to involve two parties; the parties have to come into an agreement and the rights and legal obligations of the parties. These serves as the basis of rulings made in courts as a result of filled litigation and hence understanding of the underlying principles is essential for any finance person or accountant. Bibliography A. CASES Bank of Scotland plc v Etridge (No.2) [2002] UKHL 44, [2002] 2 AC 773 British Westinghouse Electric and Manufacturing v Underground Railways Company of London [1912] AC 673 Chapleton v Barry Urban District Council [1940] 1 KB 532 Esso Petroleum Ltd. V Mardon [1976] QB 801 Fisher v Bell [1961] 1 QB 401 Henthorn v Fraser [1982] 2 Ch 27 Leaf v International Galleries [1950] 2 KB 86 McGillivray v Gilmartin 1986 SLT 89 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Smith v Hughes (1871) LR QB 597 B. CONTRACTS AND LAWS Sale of Goods Act 1979, Section 12 Sale of Goods Act 1979, Section 13 Sale of Goods Act 1979, Section 14 C. BOOKS Legal system and contract law: Topics 5, 7, 8, 9, 10, 11, 12. Poole, Textbook on Contract Law, 8th Ed. Para 2.4.1, Oxford University Press Read More