Report of a Legal Services Officer at Budgburys Ltd - Coursework Example

?Introduction As a legal services officer at Budgburys Ltd, a chain of small general stores selling both groceries and electrical products operating in the South of England, this report seeks to outline issues that are covered in business agreements to the General Manager who is not familiar with the English legal system. As such, the report starts by explaining the meaning of a contract as well outlining the essential elements that are required for the formation of a valid contract. The report will also outline the specific contract terms with reference to their meaning and effect if these terms are broken. The second part of the report will also outline the effect of exemption clauses in attempting to exclude contractual liability. A) What is a contract? A contract comes into existence when two or more people agree to a certain course of conduct (Hofman. 1999). The law gets involved where one party does not carry out his contractual obligations. However, not every agreement is a contract given that in order for it to be binding in law, it must comply with a number of essentials. A contract is based on agreement and in order to express this agreement, there must be among other things an offer and acceptance. Thus, legal systems that follow the English system also require some form of consideration before the contract is binding. Therefore, the General Manager of Budgburys should bear in mind that his organisation offers products which are acceptable. According to Harvey v Facey [1893] AC552, every contract consists of an offer made by one party and accepted by the other. Thus, an offer is an invitation to enter into a binding agreement (Gibson, 1988). Elements of a contract in business From the definition above, it can be noted that not every agreement is therefore a contract (Gibson, 1988). In order for the agreement to be binding in law, it must comply with with a number of essentials. If one of the essentials is absent, then the agreement is void which means that there is no contract. Therefore, the general manager must be aware of the following seven essentials in the formation of a valid contract. The agreement must be lawful. There are some agreements that are prohibited by the statute. Such agreements are void whether expressly prohibited or impliedly prohibited (Schierhout v Minister of Justice, 1926 AD 99). Implied prohibition occurs when statute without expressly prohibiting an act provides a penalty for the performance of the act. It has to be observed that in business, contracts under the credit agreement must be in writing and contain certain prescribed matter (Gibson, 1988). Impliedly prohibited contracts include the sale of liquor without a valid licence. The essential in the formation of the contract is the aspect of consideration. There is need to consider the capacity of the person involved in a contract to acquire legal duties. As such contracts involving minors, drunk persons as well as mentally ill persons are considered as void. Another essential tenet of the formation of a valid contract is that the parties must communicate their intentions to each other. Hofman (1999) posits to the effect that if a reasonable offeree believes that there has been an offer, the law will likely to agree given the cornerstone of contract law theory is that contracts should protect reasonable reliance. Whether written or agreed verbally, a contract is binding and it is a reflection of what has been agreed by two parties involved. This is reflected in the case of Watermeyer v Murray 1911 AD 61 at 70. As such, if a person makes an offer without realising it but reasonable people would rely on it, then the offeror is bound. The golden rule in this case is that the offeror must not make offers which he may not be able to fulfil given that these can negatively impact on his business. Another important aspect that must be taken into consideration by Mr Budgburys is the aspect of acceptance. In this case, acceptance shows consent which is an essential part in the formation of a valid contract. Once the offer has been made, then the offeree must communicate his or her acceptance for there to be mutual assent which is essential for forming a contract (Hofman, 1999). It must also be noted that silence or lack of no conduct does not amount to acceptance even if the offer states that without a reply, there is a contract. On the other hand, it must be noted that some statements such as advertisements do not readily translate into an offer and acceptance. In the English case of Pharmaceutical Society v Boots Cash Chemists [1953] 1 All ER 482 it was held that the self services stores offer and acceptance take place at the time when the customer tenders the price to the cashier not when the customer takes the product from the shelve (Gibson, 1988). The Swedish General Manager must bear in mind that not all people who visit his store are obliged to pay for the products they may touch or admire. The form of the contract is another essential element in the formation of a valid contract. In other words, a contract should not be vague. The agreement must not be so vague that its meaning cannot be ascertained by the court such as illustrated by the case of (Fluxmann v Brittain 1941 AD at 293). In this case, the other party was entitlerd to get repayment of a loan so the contract could not be said to be vague. The other essential element in the formation of a contract is that the parties involved must have the capacity to enter into an agreement which can be considered as valid by the law. They must have the legal capacity to form obligations which can be binding. The aspect of legality as discussed above is also important for the formation of a valid contract where illegal deals such as selling alcohol without a licence are impliedly prohibited by the statute (Gibson, 1988). There are different types of business such as sale agreements where cash is exchanged for goods and in some cases credits also form part of valid business agreements. In as far as the aspect of formation of a valid contract is concerned, it can be noted that the essentials discussed above are very important in the formation of a valid contract. If one of them is missing, then the contract may be treated as void hence the general manager of this particular organisation has to take into consideration all these essentials otherwise the contract may not be valid. B) Analysis of specific contract terms As aptly defined by Gibson (1988), a contract is a lawful agreement made by two or more persons within their limits of contractual capacity with the serious intention of creating a legal obligation. The fundamental terms of a contract are: an offer and acceptance by both parties involved. In business terms, if an offer is give to the other party and it is accepted, then the agreement is legally binding. Failure by the other party to owner the contractual obligation amounts to breach of contract and the person who fails to fulfil his or her contractual obligation is in breach of a contract. According to Hoffman (1999), where the contracting parties are in direct communication, it is easy to say when an offer has been accepted. In this particular case, the offeror cannot revoke the offer once the acceptance has been made. In the case of a retailer selling groceries as well as electrical goods, it may not be possible to refuse to revoke the contract once the offeree has shown intention to buy the products offered. If the offeror fails to keep his or he contractual obligations of supplying the required products on offer, then he mail be liable for breach of contract given that he would be intending to take the would be clients for granted. Remedies for breach of contract Where a contract did exist, and there was a breach of contract, different kinds of relief are possible (Hofman, 1999). Generally, the courts will not force a party to perform the contract, a remedy known as specific performance but will quantify the damages and force the loser to make a money payment to the one who wins the case. There is also need for the business proprietor to prove that a breach of contract by the buyer has resulted in loss of profits. If the seller is in a position to prove beyond doubt that the buyer has indeed breached the contract which has resulted in him suffering unprecedented losses, then the court will have a task to force the responsible party for the loss to give some form of compensation. The main role of the court is to settle a dispute that may arise between parties if they fail to keep their promises with regards to the contract they would have agreed to enter into. If the contract had been characterised by communication by both parties involved, there will be every reason for them to make sure that they fulfil their contractual obligations. It is also important for the parties involved that they enter into a contract without any jurisdiction. Therefore, they are legally bound by the terms and conditions of the contract. As noted, a contract can be verbal or written but the fact is that it is legally binding once an agreement has been made. Breaking such an agreement is tantamount to breach of contract where the courts can order the responsible person to pay for damages or compensation to the other party which has been affected by this unprecedented move. Warranties and breach of contract A warranty is no more than an undertaking for which the parties intend that contractual responsibility should be taken and which they incorporate into the contract as term (Petitv v Abrahamson (2) 1946 NPD 673). In the event of a breach therefore, the injured party has the remedies available where there has been a breach of any term of contract. The injured party in this case is put in a good position by monetary compensation as he would have been in had the undertaking been complied with (Gibson, 1988). The court can ask the person responsible for breaching the contract to perform the required action or he may be asked to compensate the injured person. A prima facie case has to be proved by the injured person against the person who is in breach of the contract. However, in some cases, A contract can be cancelled in the event that the other party has breached it. For instance, if a buyer backtracks from his intention to buy a particular product offered by the seller, then the seller has the freedom to cancel the contract if the product has not yet been delivered to the buyer. C) Effects of exemption clauses in attempting to exclude contractual liability In this particular scenario, ICC has included an exemption clause which seeks to limit its liability in the case involving the system supplied to Budgburys Ltd. It turns out that the system is completely unsuitable for Budgburys hence the law can be applied given that all the parties have equal bargaining powers in a contract. As it stands, ICC is bent on reaping money out of unsuspecting clients on the guise of the exemption clause which is specifically designed to limit its contractual liability with regards to the defective system it supplies to Budgburys. According to Smithies (2007), such kind of exemption clause can be treated as void if the courts view them as favourable to parties which are stronger compared to their partners in the contract. As such, the law is there to protect the other party which can be seen as weak. For instance, The Unfair Contract Terms of 1977 has provisions that are meant to protect the interests of both parties particularly customers in a given contract. For example, the law posits to the effect that exemption clauses have to be reasonable and both parties must agree about such a clause before entering into a contract. If the courts find that the exemption clause is unreasonable, then the contract can be treated as void. In this particular case, the system supplied by ICC to Budgburys is completely unsuitable hence this exemption clause cannot be used as a binding clause given that it can be treated as unreasonable. It can be seen that the product supplied is completely different hence this can be treated as a ploy for ICC to benefit unfairly from the customers through offering unsuitable products. On the other hand, it can be observed that The Unfair Contract Terms Act 1977 is also meant to protect the interests of the consumers when it states that “you cannot exclude liability when you supply defective goods to the customers.” It can be noted that the system supplied by ICC is defective given that it is totally unsuitable for its business needs. Thus, the exemption clause is not applicable in this particular scenario given that it will be specifically meant to create an unfavourable advantage to the other party which is unfair in as far as fair business practices are concerned. The court can decide in favour of Budgbury given that it has been deliberately disadvantaged by this company which is bent of bargaining from its operations at the expense of the other parties in business. This act also stipulates that the contract cannot be altered unilaterally without the consent of the other party. Usually, standard contracts by other organisations have clauses which seek to exclude themselves from liability of defective products but of notable concern is the fact that these clauses may not have been agreed by both parties involved in the contract. As noted above, the fundamentals of a contract are based on mutual understanding among the parties involved. However, if there is no mutual understanding among the parties involved, then the contract can be treated as null and void. In order for ICC to get away with this case, it has to prove beyond reasonable doubt that there was mutual understanding between the parties involved. Failure to do so may result in the case being treated as null and void. According to this Act, the exemption clause have to be fair and reasonable and the terms and conditions must be known to both parties before entering in that particular case otherwise the clause can be seen as a deliberate move to gain unfair advantages over the other customers or partners in a contract. Such a clause can be revoked by the court if there is reasonable ground to establish that the other party is bent on taking advantage of the other. Essentially, all parties involved in an agreement which forms a legally binding contract ought to mutually agree on one thing otherwise the contract can be treated as null and void. If there is no mutual understanding, then the exemption clause are not taken into consideration. Kit can be seen that the clause must be brought to the attention of the parties involved when the contract is being formed as illustrated in the case of Olley v Marlbrough 1949. If the clause is treated as a secret, then it may be void given that its contents are not known to the other party. Smithies (2007) also argues that standard form contracts are not mutually agreed by both parties especially the customers. It may not be possible for the customers to agree on the terms of the standard form contracts given that they may not be in close contact with the respective organisation. As such, there is a statutory law that is specifically designed to protect the interests of the customers in particular. The Unfair Terms in Consumer Contracts Regulations 1999 is specifically meant to protect the interests of the customers in particular from being exploited by other unscrupulous business partners. If the court decides that the contract is unfair, it can be treated as null and void given that it will be disadvantaging other customers. In business terms, it can be noted that all contracts must be fair and they must not be skewed in favour of powerful corporations. In this case, it can be noted that the exemption clause that is meant to exclude ICC’s liability is meant to put burden on the customer as it can be seen that his statutory rights are stripped by such a clause. Thus, Smithies (2007) suggests that a contract that has not been negotiated by all the parties involved is seen as unfair. It creates an imbalance especially on the party of the consumers who may end up losing their hard earned money as a result of the other parties which can yield more power in a contract. Basically, parties entering into a contract should be equal and they should share mutual understanding of the terms of the contract. Failure to do so may result in unfair treatment of the customers in particular since they may not have equal representation in the contract. Over and above, it can be observed that a contract is an agreement that is legally binding between two or more parties who agree to do something for the other. The basic fundamentals of a contract are an offer and acceptance and remedies in the form of money may be given if the other party breaches the contract. It has also been observed that exemption clauses can be used by the other organisations in their contract but these are often treated as unfair given that they give an unnecessary burden on the consumer. References Aldous, J, & Levy, D 1991, Making and breaking the law, UCTA Publishing Company. Victoria. Duplessis, L 1999, An introduction to law, 3rd Edition, JUTA, CT. Gibson, GTR 1988, South African mercantile and company law, JUTA, CT. Koffman, L & McDonald, E 2007, The Law of Contract, 6th Edition, Oxford University Press. E-BOOK. Viewed 16 November, 2011 http://books.google.co.za/books?id=8JtwkQrAC_kC [Accessed on 8 October 2010]. Kleyn, D & Viljoen, F 2002, Beginner’s guide for law students, 3rd Edition, JUTA, CT. Law Teacher ND, Exclusion and limiting clause Viewed 16 November, 2011 . Smithies, D August 2007, Contract: exemption clauses and unfair terms, viewed 16 November, 2010 . Read More