Contract Law in Commercial Context - Coursework Example

Contract Law in Commercial Context By + Question i. The notice toterminate agency agreement Agency relation is formed when an agent agrees to represent the principal. However, this relationship is fiduciary (based on trust), therefore, is governed by the employment laws. However, there are times when the agency relationship has to be terminated after which the agent would no authority to act on behalf of the principal. As such, the principal is required to inform all third parties that the agent interacted or dealt with on the principal’s behalf of the termination of the of the agency relationship (Bonell 2009.p.55). The known laws that govern the agency relationships are classified under contract and employment laws. There are four main known methods by which agency agreements can be terminated; lapse of time, mutual agreement, purpose achieved, and occurrence of certain events such as insanity, bankruptcy or death (Gillies 2004.p.46). Under the explicit terms that were expressed in the agency agreement contract that was signed between Arnold and VAL, either of the parties is entitled to start proceedings for the termination of the agreement. In such a scenario, the notice of contract termination form is issued by either or both of the parties in which clear guidelines are presented in relation to the duration before the termination. Based on the requirement for termination of the contract under an agency agreement, an act of the parties or an agreement for termination can be effected when both consider the operation of law (Dobson, Stokes & Dobson 2012.p.236-238). Subsequently, for the case of VAL and Arnold, there is no express stipulation for the termination date of the contract; hence, the agency agreement cannot be terminated on the basis of lapse of time. So far, the agent has been fulfilling his obligations to the principal; hence, VAL should not be terminating the agency agreement at will, but after a reasonable lapse of time and provision of a judicious notice of termination (Emerson 2009.p.98). Having signed the agreement and started working for VAL in 2013, as at the present moment, VAL may require of Arnold a notice of termination of three months given that the agency period for the agreement is taken to have occurred for over two years. Actually, it is in its third year at the present time when termination is being rooted for by both parties. Subsequently, VAL may provide to Arnold a notice of termination for the same period of time or lesser in order to avoid incurring further costs of the agreement being paid to Arnold for having been operation for the three months awaiting termination (Thorpe & Bailey 2000.p.85). This will be under the presumption of the court held in the case of Cinefot International Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 252 (N.Y. 1963) that both continued to act on the agreement’s terms after the second year into the third year. The decisions to be made in relation to the nature of notice to be given by both parties take into consideration the fact that the agency agreement is covered by regulations. The regulations are used in specifying the minimum notice periods that can be availed in the case of indefinite terms for an agency agreement, as was the case in VAL and Arnold. The regulations also state that the parties agree on longer notice periods, which must expire at the end of the calendar months (Dimatteo 2013). However, if it were VAL that terminates the contract, then it would be required to give an immediate notice of termination only on the basis that there was a serious breach of the agreement’s delivery terms by the agent (Bradgate, White & Llewelyn 2012.p.76). ii. Rights to Arnold upon termination of the agency agreement Upon the termination of the agency agreement either by the enforcement of the notice of termination given by VAL or that given by Arnold, Arnold is entitled to certain basic rights. Ideally, the reason for the termination of an agency agreement is considered to be crucial to the question of compensation for the aggrieved party (Baskind, Osborne & Roach 2013.p.25). First, according to the provisions of the English common law, Arnold is entitled to a reasonable period of notice of termination of the agency agreement as shall be provided by the principal. This is because the agency agreement they signed did not have a specified notice period for termination of the agreement or even the duration that the contract was to last (Mitchell 2014.p.105). However, the exercising of this right and its implementation by the principal shall be subject to the matters of degree and contemplation of all the conditions appertaining to the agency agreement at its signing date. Subsequently, the exercising of this right is to be implemented in line with the recognition of the fact that Arnold had a brief agency agreement that only stipulated the commission rate and the indemnification aspect upon termination of the agreement (Chen-Wishart 2015.p.156). Second, Arnold can be entitled to an indemnity payment upon the termination of the agreement since this was specified in the agency agreement form that they signed by both VAL and himself. This is because the indemnity would act as a representation for the lost commission that he could have got had he to continue in operations. Consequently, the justification for the indemnity s based on the fact that the involvement and actions of Arnold in VAL’s business has led to an increase in its business and even led to the bringing in of new clients, as well as substantial benefits to the company (Oughton & Davis 2000). Often times, the indemnity is awarded based on the capped value of the commission for one year and the average over the period worked. In certain cases, it is the court that makes a ruling for a consideration of issuing indemnity should it find it fair to do so by exercising the element of discretion to the agency (Govindjee 2007.p.79). Third, Arnold has a right of notice of termination of the agency agreement by VAL on the basis that VAL is planning to expand his operations to other regions that are outside the original coverage area as agreed in the agency contract between them and Arnold (Black 2012). Subsequently, the right to the notice of termination is proper in the sense that VAL is considering using distributors and not agents like Arnold in their expansion to Europe with their sale of vending machines. Fourth, Arnold has a right to claim for damages should VAL, which is purporting to terminate the contract it signed with Arnold through its expansion plan to Europe and the use of distributors and not agents in its expansion, fail to give a prior notice in good time to Arnold. Additionally, the right may be exercised should it be established that VAL failed to follow a correct procedure as defined by the English common law in the determination of the termination notice of the agreement (Osullivan & Hilliard 2012.p.145). Fifth, Arnold has a right under the law even in the event of proper termination of the agency agreement on notice by VAL (the principal) to an entitlement to a further payment from VAL. This is in reflection of the fact that while the agreement may have been terminated appropriately as required under the regulations, in effect, Arnold could have suffered by losing a share of his goodwill that was to be generated from the business as a result of his sale activities. This imbursement shall be in the custom of compensation to Arnold, which is calculated as a hypothetical amount a purchaser would have paid to the agent as at the termination date for the agreement (Govindjee 2007.p.63). However, the right to compensation may not be qualified on grounds that there was an express agreement for an indemnity at the signing of the contract. Subsequently, this right for compensation of the agent will not be applied in the event that the principal (VAL) exercises the right to immediate termination of the agency agreement on grounds of agent’s serious breach of the terms of the agreement (Black 2012). Sixth, Arnold has a right to make a claim for the ensured payment of the indemnity or compensation by VAL within a period of one year after the termination of the agency agreement. Therefore, he has a right to compel the company through formal communications to process and release the respective indemnity of compensation in good time so as not to lose the right to payment of the same to the company. Nevertheless, should Val cause the delay in the payment then it would be required to still make the payments on the indemnity or compensation to Arnold (Mckendrick 2014). Finally, Arnold has a right, defined by English common law to the entitlement of commission on all the transactions that were concluded after the termination of his agency agreement with VAL. This is because the agency is under regulations; hence, such commission is payable to him should his conduct or action while still the company’s agent had an influence on the successful completion of the transaction. Nonetheless, the exercising of this right is subject to two main provisions: first that the customer could have placed the order for the vending machines before the termination of Arnold’s agency agreement, but the order was completed or accepted after the effecting of the termination of agreement notice by both parties (Worthington 2003.p.94). Second, the right for the payment of the commission will be exercised should it be established that the transaction is largely attributed to the Arnold, and that it took place within a reasonable duration of the termination agency agreement. However, there are possibilities of the parties to the agreement to conduct the termination out of the entitlement expressed in this concept. iii. Key differences between agency agreements and distribution agreements While the terms ‘distributor’ and ‘agent’ are often used interchangeably among participants of commercial trades, they legally differ distinctly among them. Significant differences exist between agency and distributorship as practiced by various parties in the normal course of business in line with the requirements of the contract and commercial laws. Subsequently, the identification of these differences is discussed bearing in mind the competition laws (Gillies 2004.p.86). As such, this section shall seek to present the core differences that are noticed in the negotiations made under an agency and those made under distributorship agreement. The differences in the two forms of agreements are as highlighted in the Commercial Agents (Council Directive) Regulations of 1993 and the Competition Act 1998. First, in adherence to strict legal terms, an agent is a person acting on behalf of another person or entity through the assumption of contractual obligations on behalf of that other person. On the other hand, distributorship agreement denotes an agreement in which a person/distributor purchases certain goods from the supplier and resells them back in the market under his own account (Bonell 2008). Second, whilst the agent’s function is to provide a service to the supplier of specified goods, either through the introduction of consumers to the supplier or conducting and concluding the sale contracts on behalf of the supplier; a distributor is mainly concerned with the re-selling of the goods that he has bought from the supplier (Baskind, Osborne & Roach 2013.p.33). Third, depending on the circumstances and nature of a specific transaction, an agent may legally enter into a contract on behalf of the principal/supplier, and such a contract will be binding on the principal since the agent acted on his authority. On the contrary, a distributor is not legalized by any law to bear an authority binding the supplier or principal to any agreements made with the clients. This means that the distributor does not have the right to incur contractual obligations on behalf of the supplier of the goods they sell (Gillies 2004.p.146). Fourth, in an agency agreement, the contract for the sale of goods or supply of services is often effected between the customer and the principal and the agent only acts as an intermediary. Therefore, the prices for the good or services offered to the clients will also be controlled by the principal, so the terms of supply to the clients. On the contrary, in a distributorship agreement the contract for sale is between the customers and the distributor himself as there is no direct contractual link between the consumers and the supplier. Therefore, it is the distributor who defines his own resale prices for the commodities for the clients as the supplier is prohibited from an effect such price controls. Fifth, the principal will bear all the risks associated with the bad debts resulting from the sale of their products to consumers by an agent, and not the agent in an agency agreement. This is because the agent has no contractual responsibility or liability to any client for the services it rendered on behalf of the principal. However, in the case of a distributorship agreement, it is the distributor who bears the risks to bad debts for sales to the customers, as there are different contracts for the sale of the particular good. That is, the sale contract between the supplier and the distributor and that between the distributor and the customers. Therefore, the supplier is not obligated in any way to incur any liabilities on behalf of the distributor (Black 2012). Finally, in an agency agreement, the commission that the principal pays him remunerates the agent. This is because the agent is appointed by the principal to negotiate and conclude contracts on their behalf with the customers. In the case of a distributorship agreement, the distributor gets remunerations from the profits it earns out of the supply and sale of the goods or services from the supplier to the customers. Question 2 In consideration of the change in the nature and form of business being offered by Leanne, it would be indispensable for her to make appropriate amendments to the standard terms and conditions of sale her company (Daily Stationery Needs Ltd) has been using. According to the Sale of Goods Acts of 1893 and 1980, as well as the Sale and Supply of Goods Act of 1994, businesses are granted the permission to engage in the different types of contracts that they wish to achieve on whatever terms they perceive fit for them. Subsequently, the same act provides for procedures to be undertaken by a company in the event of wanting to make amendments to their present standard terms and conditions for the sale of items to consumers. This is necessary for the business to be able to expand its customer base and targets, but while still effecting the same objective of their formation (Poole 2014). In reference to the case of DSN, the various amendments it needs to consider for its terms and conditions for sale should be in line with the Sale of Goods Act 1979 that has conditions to meet in relation to implied terms in a terms and conditions form. First, in the case of the term ‘BUYER’ Leanne should amend this to include not only persons but entities too, given that companies also are recognized as corporate persons that can engage and be engaged in contracts. Subsequently, amendments to the term should be in relation to its content and concept that defines a buyer from the perspective of acceptance of a quotation and not the actual payment of the same. In this regard, the amendment should include the actual payment of commitment thereof, of the goods ordered and accepted for supply by the seller. This approach will essentially save the company from incurring unnecessary financial risks (Sealy & Hooley 2009). Additionally, according to the Sale of Goods Act 1979 of the UK, Leanne should amend the definition of the term ‘Buyer’ to include one who not only accepts the quotation, but the goods themselves so that they don’t get to reject them upon receipt and refuse to acknowledge them based on factors such as quality. This is essential so that the buyers lose the right of rejecting goods after accepting them. However, this should be affected after a reasonable examination of the goods by the customer being undertaken to ascertain their conformity to the contract terms and sample sold earlier (Bridge 2007.p.86). References List Baskind, E., Osborne, G., & Roach, L. (2013). Commercial law. Oxford, United Kingdom. Oxford University Press. Black, G. (2012). Contract law update, 2010-2012. Edinburgh, Trinity Law. Bonell, M. J. (2008). The CISG, European Contract Law and the Development of a World Contract Law. American Journal of Comparative Law, 56(1), 1-28. Bonell, M. J. (2009). An international restatement of contract law: the UNIDROIT Principles of International Commercial Contracts. Martinus Nijhoff Publishers. Bradgate, R., White, F., & Llewelyn, M. (2012). Commercial law 2012. Oxford, Oxford University Press. Bridge, M. G. (2007). The international sale of goods: law and practice. Oxford University Press. Chen-Wishart, M. (2015). Contract law. 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(2000). Sourcebook on contract law. London, Cavendish Pub. http://public.eblib.com/choice/publicfullrecord.aspx?p=240874. Poole, J. (2014). Textbook on contract law. Oxford, Oxford University Press. Sealy, L. S., & Hooley, R. (2009). Commercial law: text, cases, and materials. Oxford, Oxford University Press. Thorpe, C. P., & Bailey, J. C. L. (2000). Commercial contracts: a practical guide to deals, contracts, agreements and promises. London, Kogan Page. Worthington, S. (2003). Commercial Law and Commercial Practice. Oxford, Hart Pub. Read More