Legal Environment - Case Study Example

Situation One A contract by definition is a legally binding agreement. In other words, an agreement which gives rise to a contract in law creates obligations and rights that the courts will enforce. The law of contract was developed by common law jurisdictions from Roman law. The primary function of contract law is to determine the nature and extent of a bargain or deal if any, between the relevant parties. First and foremost the parties have to agree to the bargain and its terms. The validity of the bargain is determined on the basis of offer and acceptance.1 Generally speaking, an offer must contain a definitive promise providing the other party with an unambiguous option to accept or decline the offer.2 Consideration is also an essential element of the contract creation and enforceability. Once offer and acceptance are found to exist, the courts will then look to determine whether or not there is consideration. Consideration was defined by Lush LJ in the following terms: ‘…some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.’3 This is the background against which NewPort High School’s legal issues will be resolved against Ready To Ski for breach of contract. The communications between NewPort School and Ready To Ski culminated in an offer made by the latter that they could use the Ski resort each Wednesday afternoon provided the offer was accepted by Friday 29th December. A contract begins with an offer. The importance of clarity cannot be overstated. The party to whom the offer is communicated must be able to determine on the face of it what is being offered and on what terms.4 Ready To Ski is unequivocally offering skiing facilities which they intend to withdraw should NewPort fail to accept by December 29th. Whether or not NewPort accepted Ready To Ski’s offer is another matter entirely. It is commonly felt that in order for the acceptance of an offer to be legally binding it must follow the essential substance of the offer made.5 An offer can be accepted by either word of conduct.6 For present purposes, conduct is not relevant to Newport’s case. The offer was accepted via email communication. It is a general proposition of law that an acceptance of an offer is required to be communicated to the party making the offer.7 Newport’s acceptance via email is a valid acceptance communicated to Ready To Ski. In circumstances where communication of an acceptance is made via an instantaneous method such as an email, the offer is effective at the time of receipt.8 Once an offer has been accepted, a binding contract if formed and the offer ends. The fact that Lisa, acting on NewPort’s behalf did not read the email notification of the acceptance will not operate to negate communication of the offer. Ready To Ski is deemed to have notice of the offer since it has been effectively communicated to them.9 However, a further difficulty arise for Bob in that Anthea withdrew her original offer altogether. There is nothing preventing Anthea withdrawing her offer at anytime before the prescribed period which was stated to December. Either party is at liberty to change their minds before the agreement is complete.10 An early case established that in order for the revocation of an offer to be effective it must be communicated to the offeree. In this case the offeror posted an order to the offeree for 1000 boxes of plates. Approximately one week later, the offeror posted another letter revoking the offer. A few days later the offeree receives the initial offer and subsequently replies accepting the offer. It was five days later than he received the revocation. It was held that the revocation was too late. The contract was already made. The revocation was received after the offer was accepted.11 The rationale here is that the postal rules of acceptance do not apply in cases of revocation. Be that as it may, Bob has a more onerous task establishing that the offer and acceptance goes beyond a mere gratuitous exchange of promises. These kinds of promises, in the absence of an executed deed of contract and/or consideration will not be enforced by the courts. In order to substantiate an effective claim against Anthea for breach of contract, Bob will have to show that there was some consideration.12 Consideration is defined by Patterson J as ‘something which is of some value in the eye of the law, moving from the plaintiff; it may be some detriment to the plaintiff or some benefit to the defendant’.13 Situation Two The issue arising out the incident between Ben and his son Tom and Ready To Ski turns on the validity of the displayed exemption or exclusion clause. Typically, a party entering into a contract is bound by exclusion of liability clauses that are contained in the contract.14 It will not matter whether or not notice of the exclusion clause is actually received or read.15 Courts will generally attempt to balance the doctrine of freedom of contract against the necessity of protecting weaker parties in contracts.16 Notwithstanding the fact that an exclusion clause will generally bind parties to a contract, there are certain factors that can operate to negate its validity. For instance, in order for an exclusion clause to bind the parties, the party to whose detriment it is directed is required to have adequate notice of the terms of the clause either before or during the time of entering into the contract. Whether the exclusion is read or not is immaterial.17 The exclusion clause is displayed at the reception area at Ready To Ski and it generally the practice of these kinds of businesses that the contract is concluded at the front desk upon admission on the premises and the negotiation of the ski instruction terms. Therefore in the circumstances, it appears that Ben is deemed to have effective notice of the exclusion clause and its terms. The case of Chapelton v Barry UDC (1940) 1 KB 532 offers a significant exception to the application of an exclusion clause. In this case the plaintiff was on a beach resort where a pile of chairs contained a notice which essentially read, ‘hire of chares 2d per session of 3 hours – Public requested to obtain ticker from attendant.’18The plaintiff helped himself to a chair and availed himself of the ticket which stated ‘the council will not be liable for any accident or damage arising from hire of the chair.’19 It was held on appeal that the restriction was not contained on the notice to obtain a ticket (which may not have been obtained simultaneously with the hiring of the chair) and could not operate to alter the terms of the contract.20 Applying the reasoning in this case Ben and Tom are bound by the exclusion clause since it is present at the place and time of entering into the contract. Another factor arising out of the exemption clause includes the doctrine termed ‘in the course of dealing’.21 The court is at liberty to conclude that a consumer has adequate notice of an exclusion clause since he is a regular patron of the business in question.22 On the facts of the case for discussion, Tom has never skied in the past and it therefore follows that he is not a regular patron of Ready To Ski. This will operate in Ben and Tom’s favour particularly when looked at together with the ruling in Baldry v Marshall (1925) 1 KB 260.23 In this case the court warned that the exclusion clause must be clear and concise and it will be very strict in this regard in cases where such a clause seeks to restrict or exclude damages in respect of personal injuries.24 Moreover the Unfair Contract Terms Act 1977 will operate to impose liability for personal injuries on Ready To Ski. By virtue of Section 2(1) of the 1977 Act Ready To Ski cannot exclude liability for damages resulting from personal injuries as a result of negligence. Under S2(1) no one acting in the course of a business can exclude or restrict his liability in negligence for death or personal injury by means of a term in a contract or by way of notice.25 Section 2(2) of the Unfair Contract Terms Act 1977 makes provision for enforcement of exemption clauses in respect of other types of damages including loss of property.26 Therefore based on the provisions contained in Section 2 of the 1977 Act Ben and Tom can claim damages for personal injuries but not for the lost and/or stolen property. Moreover, by virtue of S4 of the 1977 Act, an exclusion clause is not generally enforceable when one of the parties to the contract is a consumer, unless the clause is reasonable.27 This section is founded on principles of inequality of bargaining position.28The ‘good faith’ doctrine is primarily reliant upon the strength of the respective bargaining position of the parties and determines whether or not it is fair and reasonable in the circumstances to validate the exclusion clause.29 Privity of Contract is also applicable to the effectiveness of the exclusion clause. The doctrine of privity conveys that a contract cannot grant rights nor can it impose obligations on persons who are not parties to a contract. The courts have consistently held that a third party is not protected by terms of the exclusion clause. Employees have been held to be third parties.30 The doctrine of privity of contract will also arise to protect Tom. Section 1(5) of the Contracts (Rights of Third Parties) Act 1999 also arises to grant Tom the right to sue Ready To Ski as a third party. His right to sue arises under the tort of negligence.31 In any event Ready to Ski will be vicariously liable for the negligence of the ski instructor who while in the course of his employment took a minor who had never skied before to the top of the ski slope for his first lesson.32 By virtue of the doctrine of vicarious liability an employer is liable for the negligent acts of an employee while acting in the course of his or her employment.33 Situation Three Whether or not Paula was under a duty to disclose the terms of her conviction for fraud will depend on whether or not the conviction is spent. By virtue of the provisions of the Rehabiltation of Offenders Act (1974) after the expiration of a particular time period (depending on the sentence and the length of time required) the conviction is considered spent and there is no requirement to disclose it to a potential employer.34 The discovery of a previous conviction on the part of an employee can constitute grounds for dismissal. However, it will be more difficult for this discovery to constitute grounds for dismissal if the employer never made enquiries regarding previous convictions prior to employment.35 If Ready To Ski had inquired before employing Paula and she refused to disclose the fraud conviction and sentence, then Ready To Ski has a right to dismiss Paula and refuse to accept her notice. In the case of Kawol v Caring Homes Ltd the employment tribunal held that failure to disclose the contents of a previous conviction and sentence on the part of an employee constitutes a breach of contract because it represents a breach a trust between an employee and employer. The breach of contract is not based on the conviction itself but the failure to disclose it when asked.36 It appears on the facts that the terms of the employment contract between Paula and Ready To Ski were varied to include double time and pay on Friday and Saturday at the resort. It is not clear however, if there was actual performance on Paula’s part as the only evidence available is that Paula put in her notice on Monday and it is not stated whether that is the Monday preceding the agreed Friday and Saturday or the Monday following that weekend. If it is the Monday prior to the agreed work hours on Friday and Saturday, Paula has breached the terms of the contract by submitting her notice and is not entitled to compensation.37 However, if the notice was submitted following the actual performance of the contract, Ready To Ski is liable to Paula for payment in respect of the work performed pursuant to the terms of the variation of their contract.38 However, if Paula’s notice to quit was submitted prior to the actual work weekend, she can argue that she merely submitted to the terms for variation by virtue of duress and undue influence. To start with, the resort was understaffed and secondly it was unusually busy. These factors could have operated to put undue pressure on Paula to agree to the work terms. This together with the offer of additional money can be said to have only added to substantiate a claim for undue influence.39 As such Paula will have a defence to a claim in breach of employment contract in any counter claim that Ready to Ski might wish to file. There are no statutory provisions requiring an employer to pay an employee for overtime.40 However, general principles of contract law will arise to compel Ready to Ski to pay Paula for working the overtime hours as previously agreed between them. However, as a result of her failure to disclose her previous conviction, Ready To Ski is discharged of any responsibility to compensate her for termination of the employment contract. Situation Four There are essentially two elements for consideration in the case between Bentham and Ready to Ski. They are the recovery of damages in respect of pure economic loss and the impact of an exclusionary clause limiting liability in respect of breach of contract. Pure economic loss is recoverable in disputes arising under the law of contract.41 Remedies for breach of contract endeavour to place the parties in the position they would have been in had the contract been performed satisfactorily or according to the terms and conditions contained in the contract.42 The concept of punitive damages is unknown to the law of contract therefore actual damages are assessed. Ready To Ski’s claim for loss of business is an actual loss and will be assessed by reference to evidence supporting the pattern of income offset by the actual income accrued during the period for which the contract was delayed.43 This will fall under the head of general damages as it involves an unquantifiable sum and calls for an estimate of a loss of profits. However, Ready To Ski’s ability to claim a loss of profit is limited to the exclusion clause in the contract which limits recovery to 200 pounds a day in the event the contract is not completed on time. As previously discussed, the Unfair Contract Terms Act 1977 will not arise to discount the exclusion clause since the parties are both business organisations and there is no element of inequality of bargaining position. Ready To Ski is deemed to have read the contract and signed it therefore binding itself to the exclusion clause contained therein. In order for an exclusion clause to be valid and enforceable it must form part of a document that a reasonable person would anticipate containing contract terms. A construction contract is such a document.44 However, a difficulty arises for Bentham which might not permit the exclusion clause to operate in its favour. Ready To Ski might be able to argue that completing the wing on time was a fundamental part of the contract. Therefore an exclusion clause can not limit liability when there is a fundamental breach of the contract.45 Recent developments at common law suggest however that an exclusion clause applied to all liabilities and would not be negated by a fundamental breach. Based on the foregoing discussion it appears very unlikely that Ready To Ski can pursue a claim for unquantifiable damages in respect of loss of profits. They are more likely to have to settle for liquidated damages as provided for in the exclusion clause limited damages to 200 pounds a day. Bibliography Adler v Dickinson [1954] 3 All ER 396 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Baldry v Marshall (1925) 1 KB 260 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Brogden v Metropolitan Rail Co (1877) 2 APP CAS 666 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Byrne v Van Tienhoven [1880] 5 CPD 344 cited in McEntive, E. Business Law. (2005) Longman, Pearson Higher Education Chapelton v Barry UDC (1940) 1 KB 532 cited in McEntive, E. Business Law. (2005) Longman, Pearson Higher Education Currie v Misa (1875) LR 10 Exch 153 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education McEntive, E. Business Law. (2005) Longman, Pearson Higher Education Offord v Davies [1862] 12 CBNS 748 cited in McEntive, E. Business Law. (2005) Longman, Pearson Higher Education Spurling (J) Ltd v Bradshaw (1956) 1 WLR 461 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Thomas v Thomas (1842) 2 QB 851 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education Thomas v LM & S Ry (1930) 1 KB 41 cited in McEntive, E. Business Law. (2005) Longman, Pearson Higher Education Unfair Contract Terms Act 1977 cited in Keenan, D. (2006) Smith and Keenan’s Law for Business. Longman, Pearson Higher Education When Convictions Come to Light. http://www.recruitermagazine.co.uk/Articles/330828/When+convictions+come+to+light.html Viewed January 24, 2007. Williams v Staffordshire County Council [2001] EWCA Civ 1116 Read More