The Foundation of the Law of Contract - Coursework Example

? Business Law One of the common every day branches of law is contract law. Most contracts generally pose no major problems as they address the simple interchange of goods from the seller and cash from the buyer. However, there are contracts that could get complicated and pose serious consequences. The chances of this happening are therefore minimized if the parties contracting understand the concept of what they are agreeing to, the rights, the obligations and the how to foresee potential problems. Keywords: legality, breach, obligations, duties Business Law Introduction Contract law is one of the major and most common branches of every day law. Most contracts generally pose no major problems as they address the simple interchange of goods from the seller and cash from the buyer. However, there are contracts that could get complicated and pose serious consequences. The chances of this happening are therefore minimized if the parties contracting understand the concept of what they are agreeing to, the rights, the obligations and the how to foresee potential problems. Under law, a contract is a legally binding promise or set of promises between two parties (Young, 2010), in this case Simon and Lady Gaga. However, there are certain contracts that must, by law be in writing. Examples include insurance contracts or contracts that involve the sale of land. Verbal contracts have one main shortcoming. Whenever there is a dispute over the terms of the contract, it may be very difficult to prove the terms and conditions on which the contract was founded. Parties may deliberately or accidentally forget what they had agreed to. In such a situation, it would be Simon’s word against Lady Gaga’s in the case of a breach. It would therefore be advisable for Simon to enter into a written contract. The foundation of the law of contract is based on a wide body of equity and common law. In order for a contract to be legally binding, there are several requirements that must be met. These were developed under the principles of the common law (Fray & Frey (2001). They are: agreement, consideration, intention, capacity, and legality. These are the requirements on which my advice to Simon is based. Agreement The law considers the distinct aspects of an agreement in a contract. These aspects are two and they must be present for any contract to be considered binding at law. They are offer and acceptance (Richards, 2007). Simon must make an offer that Lady Gaga will clearly and unmistakably accept. The offer would be an indication by Simon that he intends to be bound in a contract with Lady Gaga if she does accept it. In this case Simon is the offeror. a) Invitation to Treat The offer must however be clear and not just an invitation to treat. An invitation to treat would just an indication that he would be wiling to negotiate an offer on the terms of a contract for Lady Gaga to perform in the show. Simon would thus be the one to accept the offer for it to be legally binding. Similar views were held in the case of Pharmaceutical Society of Great Britain V. Boots Cash Chemist (Southern) Ltd (1953) 1 QB 401. In this case, the legislation required that there must be a pharmacist present whenever there is a sale of a drug at a self-service store. The question that rose was whether the sale took place when the customer took the drugs from the shelves or at the counter on checkout. It was ruled that the sale actually occurred at the counter when the customer offered to buy the drug at the stated price and the owner accepted the money. This meant that the display was just an invitation to treat and not an offer to sell. b) Counter offer The contract is established when the acceptance has been made. It is therefore important that one is able to identify when the acceptance has actually been made. This is because when Simon makes an offer to Lady Gaga, she may choose to accept it, reject it or try to negotiate for a better deal. For the acceptance to be effective it has to be clearly communicated and it must be under the same terms in which the offer was made. If there are variations to the terms or any of part of the offer, the acceptance shall constitute a counter offer. In such an instance, Lady Gaga would have cancelled the previous offer and it would now be up to Simon to accept the new offer for a legally binding contract to be created. Consideration Consideration, in legal terms means giving something in exchange for another. It is essential for a contract to be legally binding. It is the legal benefit that one party gets on one hand, and the legal detriment that is imposed on the other party to the contract (Elliot & Quinn, 2009). In this case Simon would be providing money in exchange for Lady Gaga’s performance in his TV show. On the other hand, Lady Gaga, if she accepts the offer, would be performing at the show in return for the payment that she would receive for her services. a) Value The consideration exists because of some interest, right, profit or benefit on the promisor as a consequence of the detriment, loss, responsibility or forbearance that is undertaken or suffered by the promise. For it to be effective, it cannot be in the past. It therefore has to be executed, for example if Simon pays her to perform during her tour or executory, if for example Simon promises to pay her after her performance in the show. Simon cannot use anything that he or she may have done in the past, as the basis of the future performance because past consideration is no consideration before the law. That would not amount to good consideration and therefore the contract would not be binding. b) Adequacy It does not matter how minimal consideration is, for it to be good, it must have some value. The law does not necessarily require that the consideration is commensurate according to the prevailing terms of the promise that was made. Generally, courts will not measure how adequate a certain consideration is as normally, nominal consideration will amount as good consideration. It would therefore be up to Simon to decide worth of the promise subjectively. This is because they may eventually enter into a binding agreement. Simon may have intended that Lady Gaga performs the whole of her new album and she ends up performing two songs. He would not have recourse for this if he does not present this issue before they enter into a binding agreement. In the case of Chappell & Co. Ltd. V. Nestle Co. Ltd (1960) AC 87, Lord Somervell observed that “a contracting party can stipulate for what consideration he choose. A peppercorn does not cease to be good consideration if it is established that the promisor does not like pepper and will throw away the corn.” Intention Every person entering a contract must intend to be bound by that contract. This is to ensure that the parties that negotiate a deal but never had the intention to be legally bound by such negotiation are not caught up in a web of contractual agreement. Whenever a party to a contract claims that they never intended it to be legally binding, the courts would determine the issue using an objective test. This is based on what a reasonable person would understand the intentions of the parties to be. If all indications are that the parties intended to be bound, then it would be presumed that that was the intention of the contract. Simon will therefore have to make sure that any contract that he ultimately signs with Lady Gaga clearly indicates this. Generally, in a business contract, it is assumed that the parties had the intention to be bound by the contract they made. However, this assumption can be reversed Capacity Anyone has the right to enter into a contract. However, both parties in a contract have to have the necessary mental capacity to understand what it is they are doing or binding themselves to. Under common law, the following groups are considered to lack the capacity that is required to a certain extent: minors, mental impaired persons or intellectually disabled parties or people under the influence of alcohol or drugs. For a contract to be challenged on the basis of incapacity, the party challenging it will have to prove that in addition to them lacking capacity, the other party was aware of this fact. Lady Gaga is not a minor. Therefore, the issue of incapacity based on this ground does not arise. Neither will the issue of being intellectually disabled. In Gibbons v. Wright (1954) 91 CLR 423, the High Court held that in relation to every particular matter or piece of business transacted, each party to a contract should have the “soundness of mind” so as to be capable of understanding the general nature of what they are doing by their participation. It therefore follows that Simon cannot enter into a binding contract with Lady Gaga if she is drunk, mentally ill or in a condition in which she may not have an idea that she is involving herself in a contract. In such a situation, she would lack the required contractual capacity. If however, despite this, she is still aware that she is involving herself in a contract, capacity will be presumed to exist unless Simon takes advantage of this fact. Legality The law has nothing to do with contracts that are fundamentally illegal and will therefore not enforce them. To this extent, the subject matter of any contract must therefore be legal. This therefore means that contract may void, which means the contract never actually existed and as a result there were no contractual obligations or rights arising from it. This may be because of lack of consideration, lack of agreement or the contract being illegal. However, there are times an illegal term or condition may be removed from a contract and it would thus become valid. A contract may also be voidable, which means that it is valid but there is a wronged party who may be in a position to avoid the obligations that it imposes. On aspect of contracts that is related to the legality of a contract are the terms and conditions. Terms of the Contract The points on which the parties have agreed are referred to as the terms of the contract. Contracts are usually made up of several terms. They form part of the contract, with each giving rise to an obligation of which if not met amounts to a breach. It is not always the case that all the terms are expressly stated. Moreover, some terms may carry less legal weight as they may be peripheral to the main objectives of the contract. Contractual terms are classified into: express and implied terms; conditions and warranties; innominate terms and exemption clauses. a) Express and Implied Terms Express terms are specifically mentioned and agreed to by the parties at the time the contract is made. They too may be oral or written. There are however times where some terms have not been mentioned by any of the parties. These terms will nonetheless be part of the contract otherwise; it would not make business sense. Such terms are legally referred to as implied terms. Implied terms are mainly of two types, those implied by statute, especially relating to the services that are being paid for, in this case the performance; and those terms that are implied by the courts such as those that are a matter of fact like a reference made on Euros would mean that specific currency if it is the mode of payment, those that are a matter of law such as the assumption that Simon would provide the equipment for the performance, or a customary term which would generally be used in that form of contracts. b) Conditions or Warranties The terms of the contract may be written or oral. Conditions are those terms that go into the root of the particular contract. Any breach of these terms repudiates the contract and allows the other party to discharge the contract. If either Simon or Lady Gaga does not meet the conditions of the contract, they would be liable for breach. A warranty on the other hand is not as imperative. The breach of a warranty does not necessarily amount to a discharge of the contract; in most cases therefore a contract will survive the breach of a warranty. For the contract to be legal, the conditions and warranties must be legal and practicable. They may determine whether the contract is enforceable as against Lady Gaga in this case. Depending on the negotiations with Lady Gaga, whether a term goes to the root of the contract is a matter of fact and not of law. If Lady Gaga does agree to perform during the TV show, this will amount to an obligation that is a condition. This is the same principle that was upheld in the case of Poussard v. Spiers & Pond (1876) 1 QBD 410. It should be noted however that for her to perform during a rehearsal would amount to a warranty. This principle was upheld by the courts in the same year in the case of Bettini v. Gye (1876) 1 QBD 183. There are also instances where a stature or legislation may declare a term or its nature to be warranty or a condition. Simon would therefore have to take these factors into consideration. c) Innominate Terms It was in the case of Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha (1962) 1 All ER 474 that the concept of an innominate term was created. The characteristic of this term is unique in that its breach may or may not get to the root of the contract. This is because the whether or not the contract could be discharged because of the breach of an innominate term depends upon the nature of the breach and whether the legal benefit accruing out of the contract has been removed from the party who is innocent as against the breach. Like all other terms of a contract, breach of these terms would lead to damages being awarded to the offended party. d) Exemption Clauses It is common for a party to a contract to include a term that is aimed at excluding or limiting their liability in the event there is a breach. There are instances where this may seem unfair. For example, if Lady Gaga negotiates for a provision that may limit her liability in case she does not make an appearance. The law tries to make the playing field level and as such, any party that relies on such a clause would have to show that the other party expressly agreed to such a clause when executing the contract. Breach The remedies fro the breach of a contract are established under common law or equity. The most common remedy is that of damages. These depend upon the basis of whether it was a condition or a warranty that was breached. It would also depend on whether it is an innominate term of the contract and the nature of the breach. Parties could specify in the contract the amount of damages that would be payable in the event that there is a breach. Given that Simon would really need this performance in order to increase viewing figures and by incorporating Lady Gaga as a guest performer, her not making the appearance would not only damage the show but also Simon’s career Conclusion Most contracts generally pose no major problems as they address the simple interchange of goods or services from the seller and cash from the buyer. They could also get complicated and pose serious consequences in case of a breach. The chances of this happening are therefore minimized if the parties contracting understand the concept of what they are agreeing to, the rights, the obligations and the how to foresee potential problems. This would be my advice to Simon. References Young, M. (2010). Contract Law: The Basics. London: Routledge-Cavendish Richards, P. (2007). Law of Contract. Harlow: Pearson Longman Elliot, C & Quinn, F. (2009). Contract Law. Harlow: Pearson Longman Fray, M. A. & Frey, P.H. (2001). Essentials of Contract Law. Connecticut: Cengage Learning Wishart, M. C. (2007). Contract Law. 2nd Ed, Oxford: Oxford University Press Read More