Business Contracts - Formalities and Capacities - Coursework Example

? Scenario 2: Business Contracts: formalities and capacities XXXXX XXXXX XXXXX XXXXX XXXXX A business contract intends to formalize an agreement betweeen two or more parties. Business contracts can cover a wide range of matters, for instance, on employment terms of an independent contractor relationship, on the sale of goods or real property and ownership of intellectual property developed as part of a work for hire. Contracts are everyday part of life. They may be oral or written down. A contract is defined as a promise or a set of promises for the breach of which the law gives remedy or the perfomance of which the law recognizes as a duty. A contract can also be said to be an agreement that the law recognises as giving rise to enforceable obligations. It is viewed as dealing with voluntary undertakings, and gives a high priority to ensuring that only bargains to which people have their true consent are enforceable by courts. Contracts have different classifications. The can be unilateral or bilateral. A unilateral contract is entered into by th e way of exchanging promises of the parties. It is a promise for a promise. Usually, no act of perfomance is necessary to create a bilateral contract. In the case of a unilateral contract the offerer’s offer can by accepted only by perfomance of a certain act by the offeree. The promise is one-sided. Contracts can also be express-an agreement that is expressed in written or oral words- or implied-in-fact-an agreement between parties that has been infrerred from the conduct of the parties. A formal contract requires a special method of creation, e.g. recognizances while those that do not need require such are known as informal contracts. Contracts can be executed or executory. An executed contract is one that has been performed by both sides while one that has not is referred to as an executory contract. Lastly contracts can also be classified as valid, void, voidable or unenforceable. A valid contracts meets all the essential elements of a contract and can be enforced by at least one party. A void contract has no legal effect. A voidable contract is one in which both parties have the option of avoiding their contractual obligations. An enforceable contract has the essential elements to form a valid contract but there is some legal defence its enforcement. A business contract is seen as giving rise to three interconnected elements namely: A promise: reference to a promise may be misleading in the context of English law. The English law does not give effect to a mere promise. An agreement or the meeting of minds is needed. This is a simple way of distinguishing promises that don’t give rise to legal to duty to the ones that do. For instance, a promise to meet another for dinner at 8pm gives rise to no legal obligation- it is a mere promise- whereas a promise to sell someone a machine for ?4000 gives rise to a legal obligation A legal duty arising from that promise: the doctrine here distinguishes between bilateral and unilateral contracts. In the case of a bilateral contract, it gives rise to obligations by all parties. For instance in the sale of goods, the seller has the obligation to transfer title in the item of sale to the buyer, whilst the buyer is obligated to pay the price. In a unilateral contract, only one party is bound. In this case, it is the legal duty of the promisor (maker of statement) to fulfill his promise on the promise (the person to whom statement is made). A remedy for breach of that duty: in consideration of the development of remedies, distinction has to be made in English law between common law and equity. Both have separate sets of doctrines though they are administered in the same courts. Elements of business contacts The following elements are essential for the formation of a valid business contract: Agreement i.e. offer and acceptance Consideration Capacity or competence Intention to create legal relations While some contracts have no special requirement and an oral agreement is binding in law, some have to be in writing. For example contracts for the sale of land must be in writing. An offer is a certain and undeniable statement of willingness to be bound on specified terms without further negotiations. It can be in three forms namely, oral, written or by conduct. An offer, however, is not effective until it has been communicated to the offeree. An offer can be made to a particular an individual, a class of persons or to the whole world. An invitation to treat is not considered an offer. An invitation to treat implies an invitation to the other party to make an offer. For example, in the case of Gibson v Manchester City Council (1979) ‘we may be prepared to sell’ was used. Other examples of invitation to treats can be found in most advertisements, shop window displays and goods on shop shelves. An offer, once terminated, cannot be accepted. This can be done by revocation, rejection or lapse. Revocation by the offeror may be made any time before acceptance, even if the offerer has agreed to keep the offer open. For example in the case of Routledge v Grant (1828), Grant offered to buy Routledge’s horse and stated that the offer would remain open for six weeks, but withdrew it before the period of six weeks had elapsed. It was held that Grant was entitled to withdraw the offer at any time before acceptance. Revocation must, however, be communicated to the offeree. Rejection by the offeree may be downright or by way of counter-offer. This is an offer made in response to an offer. An offer lapses on death of the offeror, death of the offeree or after the expiry of a fixed time or after a reasonable time. Acceptance is the absolute and unqualified assent to all the terms of the offer. It may be written, oral or by conduct. However, the offeror can stipulate the mode of acceptance. If he or she doesn’t the offeree is not limited to that mode. Acceptance is not considered to be effective until it has been communicated to the offeror. In the case of Entores v Miles Far Eastern (1955), the claimants, based in London, made an offer by telex to defendants who were in Amsterdam. The method of acceptance was telex. The issue here was where the acceptance had taken place i.e. in London when it was received or in Amsterdam when the defendants sent the telex. It was held that the contract was made in London since acceptance is not effective until it is communicated. The basic rule on consideration is that every business contract must be supported by consideration from each party. Specialty contracts, however, don’t require consideration unless it is explicitly stated in the terms of agreement. According the Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd (1915), consideration is an act on the part of one party to a contract as a price of the promise made by the other party of the contract. A consideration maybe executory (where there is exchange of promises to do something in the future) or executed (an act carried out at the time the contract is made). A consideration has to be sufficient but doesn’t need to be adequate. Sufficiency in this case means there is some monetary value to the consideration and capability in law of amounting to consideration. In Thomas v Thomas (1842), a promise to convey a house to a widow for rent of ?1 for a year was binding. It was held that the consideration had value, even though it way has been inadequate. In order to create a binding contract, both parties must intend to enter into a legal relationship. The law presumes intention of the parties based on the type of agreement. For instance, social agreements are not legally binding, unless it’s proven otherwise. In commercial agreements it’s presumed that there is legal intention to be legally bound unless it can be proven to show otherwise. For instance in the case of Jones v Vernon’s Pools Ltd (1938), Jones argued that he had forwarded a winning entry to the defendant company but they denied having received it. To deal with this type of eventuality, the defendant company had printed a clause on the pools coupon signed by Jones stating that “any agreement entered into shall not give rise to any legal relationship but is binding in honour only”. It was held that no contract existed between the parties and Jones could not sue the pools company for a breach of contract. All parties must have the contractual capacity to make a contract. Adults, usually, have full capacity and are able to enter into contacts. Some groups like minors, however, have limitations when entering into contracts. Minors are individuals under the age of 18 as outlined under the Family Reform Act of 1969. In our case here, Edward is considered a minor. Some agreements are binding to him while others are not. He has capacity limitations and thus there may be liability is some agreements. Liability of minors is defined in the Sales of Goods Act (1979) when buying necessaries. In the Act necessaries are defined as ‘goods suitable to the condition in life of a minor’. Therefore minors are liable under a business contract when they buy necessaries. Extension of necessaries is beyond the essentials and goes on to mean items needed for the young person and their lifestyle. However, according to the act, minors are not liable to goods that have not been delivered to them. Valuable utility can be considered necessaries and a minor would be liable to pay for such utility items. Items of luxury are not considered as necessaries. For instance, in the case of Chapple v Cooper (1844) a service was considered necessaries. In a different twist in the case of Nash v Inman (1908), it was held that waistcoats supplied to a student could have been considered as necessaries but his father had already provided him with several waistcoats. When a minor is liable to pay a reasonable price, this depends on the income of the minor besides the issue of whether the services and goods are actually necessaries needed by the minor. Another aspect is the supply. Even if the minor needed something and the can afford it, the service or good cannot be considered a necessary if the minor already had a supply of it. Business contracts or general contracts considered for the benefit of the minor are those of service, training, education, employment or apprenticeship. The courts reject a contract if it is not in the benefit of a minor. For instance, in the case of De Francesco v Barnum (1889) a minor of 14 years got into an agreement to train as a dancer. The contract, however, had conditions which were not considered beneficial to the minor and thus, the contract was not binding. In a different case Doyle v White City Stadium (1935) the contract was enforced. In the case, there was an agreement to train a boxer. No money was paid but it was held that the contract was enforceable because it was beneficial because of the training. Again in the case of Clements v London & NW Rail Co (1894) the contract was considered beneficial, even after certain benefits were removed from it. Thus, the contract was enforceable. Some contracts can be voided with minors. For example, if there is a contract with a minor in a continuous agreement for example payment for renting property. The contract is considered to be valid. If, however, the minor rejects the contract before reaching the age of 18 years, it basically means the minor ends the agreement in the contract. An example is the case of Steinberg v Scala (Leeds) Ltd (1923) in which the contract was voided. In the case of Edwards v Carter (1892), however, it was held by the court that the contract couldn’t be rejected and the agreement was enforceable. In defective contract, if money is paid by a minor, it cannot be recovered unless it is proven that the contract has not been beneficial to the minor. For instance, in the case of Pearce v Bain (1929), the court decided that the goods were not necessaries. The contract became void and only money could be recovered and not the goods. The Minors’ Contracts Act 1987 was introduced to protect the minors and provide guarantees when involved in contracts with adults. Rules with minors and contracts are outlined in sections 2 and 3. In the second section a contract would be enforced against the adult where the adult provides guarantee against the agreement made by the minor. If the minor breaches the contract, the adult would be held liable. In the third section, if the minor refuses to pay, a court can have non necessaries, property or property representing it returned. In the first agreement Edward enters into a contract with a tailor to supply him with a new suit of clothe for 150 pounds. In this case the goods here (suit of clothes) can be considered as necessaries. A look at the Sales of Goods Act shows that Edward is bound by this agreement since the goods are necessaries and beneficial to him. It should however be proven that Edward did not have enough supply of clothes. In the second agreement Edward gets into a partnership agreement. He is not bound by this agreement. The law states explicitly states that a minor cannot become a partner of a firm. However, a minor can be admitted to the benefits enjoyed by a partnership business. This means that partners of a firm can decide to grant a profit share to a minor. This is the same case with Edward. He cannot have unlimited liability in a firm. But upon attaining the age of majority, he can decide to become a regular partner. In the third case, Edward takes a loan of 2000 pounds at 8 per cent interest to be repaid in two years. Loan agreements entered into with a minor, whether informal or formal are not enforceable under law because they are voidable at the option of the minor. Therefore this agreement is not enforceable. However, Edward will be liable to pay or enforceable under law if The loan was for the purchase of necessities Edward fraudulently represented that he was of the age of majority when he took out the loan. Edward may decide to ratify the loan upon attaining the age of majority, which will render it enforceable. References Smith & Keenan. 2010, Law for Business, 14th. Ed. Pearson, United Kingdom Read More