Legal Aspects of Business - Assignment Example

Legal Aspects of Business Section A Question One Introduction Bill cannot claim against Helen for breach of contract, as there is no contract between Helen and Bill. Helen had advertised in the newspaper, the sale of her Chinese pot, and Bill enquired its cost. Helen offered to sell it for £1,000, and Bill offered by email to purchase it for £900, which Helen refused. Bill was unable to communicate further with Helen by email; hence, he consented to purchase the pot for £1,000, by posting a letter to that effect to Helen. However, Helen had sold the pot, prior to receiving this letter. The legal rules that apply to this problem are the rules of contract formation, invitation to treat, offers, counter-offer and breach of contract, under the provisions of contract law. In order to answer this problem, the rules of contract formation and breach of contract have to be examined. Rule of Law An offer constitutes an act, whereby a person making an offer (offeror) confers on the recipient of the offer (offeree) the capacity to form a legally binding agreement between them, by accepting that offer. Upon the acceptance of the offer, the contract is deemed to be complete and legally binding[Gil88]. An offer may be made under circumstances that convey the intention of the offeror to be bound by the commission of an act by the person to whom the offer is made. Such act is termed the consideration to be performed by the offeree. Under these circumstances, the act carried out by the offeree represents acceptance and performance of consideration. Instances of these are to be found in England v Davidson and Carlill v Carbolic Smoke Ball Company[Gil88]. It is possible to make an offer through an advertisement. This was the gist of the ruling in Carlill v Carbolic Smoke Ball Company. However, the terms of the advertisement should make it clear that the advertiser intends to be legally bound by the same[Gil88]. The proffering of a counter offer by the offeree amounts to a rejection of the original offer. At that juncture, the original offeror can treat the counter offer as a new offer from the offeree and either accept or reject it. This was illustrated in Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd[Gil88]. Upon being presented with an offer by the offeror, the offeree can accept or reject it. If the offeree accepts the offer without making any changes to it, then a binding contract arises. However, even the slightest modification to the terms of the offer will transform it into a counter offer, and the original offer will stand terminated[Gil88]. Prior to its acceptance, an offer can be revoked by the offeror. Once the offer is accepted, a binding contract is created and the offer cannot be revoked. Such revocation has to be conveyed directly or indirectly. When the revocation is transmitted by mail, it does not become effective until the mail is received. This was demonstrated in Byrne & Co v Leon Van Tienhoven & Co[Gil88]. Application It is to be determined whether Helen’s advertisement to sell the Chinese pot constitutes an offer. In general, advertisements are regarded as invitations to treat. For instance, in Partridge v Crittenden, the advertisement for the sale of birds was not deemed to be an offer. Thus, Helen’s advertisement regarding the sale of the Chinese pot is tantamount to an invitation to treat. Bill had enquired, over the telephone, and negotiated to pay her £900. This constituted the offer, to which Helen had demanded £1,000. Her reply constituted a counter offer, which terminated the original offer. The letter from Bill, expressing his willingness to purchase the Chinese pot for £1,000 was a new offer. Since, Helen had not accepted this offer, the court would refuse to acknowledge the presence of a contract between Helen and Bill. It is possible to revoke an offer, prior to its acceptance by the offeree. This had been clearly illustrated in Byrne v Van Tienhoven. Thus, it can be emphatically declared that there is no contract betwixt Helen and Bill. Hyde v Wrench provides a demonstration of the above principle. In this case, Wrench had offered to sell his farm for £1,000 to Hyde. The latter replied that he was willing to purchase the farm for £950. Wrench rejected this proposal, and subsequently Hyde wrote a letter, wherein he agreed to purchase the farm for £1,000. This missive from Hyde was ignored by Wrench, and the court held that there was no contract between Hyde and Wrench. Hyde’s offer to purchase the farm for £950 was held to be a counter offer that effectively terminated the offer made by Wrench. The letter sent to Wrench, by Hyde, wherein the latter agreed to purchase the farm for £1,000, was held to be a new offer from Hyde, which Wrench was well within his rights to refuse. Conclusion Helen cannot be held liable for breach of contract. Bills counter offer for £950 was rejected by Helen. Hence, Bill’s letter constitutes a new offer. This did not reach her, by the time she had sold the pot to others. As such, the contract of sale had been completed. Consequently, Bill’s offer by letter had no validity. Question Two Introduction Darren has a claim against Alice for the additional amount due to him, with respect to the works completed by him, under the principle of promissory estoppel. This is because, Darren relied on Alice’s promise to pay him an extra amount for completing the work within a specified date. He completed the work by that date, by putting in extra effort. Completion of the work within that specified date, benefitted Alice, as she could conduct the garden party, whose guests had been invited and catering ordered. However, Alice refused to pay the extra amount. The legal basis for Darren’s case against Alice is promissory estoppel in contract law. The legal rules applicable to this problem are; consideration, promissory estoppel, and part payment. Rule of Law Promissory estoppel has the object of precluding injustice arising from the withdrawal of a promisor from his promise. This promise should have caused the promisee to act to his detriment[Tal122]. The debtor relies upon the promise of the creditor, while making a part payment. This renders it inequitable for the creditor to withdraw from his promise. However, there could be other considerations, and these could justify the creditor’s claim for the full amount owed to him by the debtor [Bea12] Application Promissory estoppel enables Darren to claim against Alice for the extra amount promised by her for completing the work within a specified date. Under this doctrine, Darren is entitled to the extra amount as consideration for the practical benefit derived by Alice. In addition, Simon owes Darren £500, for some work done by Darren. Simon offered £400, due to paucity of funds and Darren accepted it as full payment for the debt owed to him by Simon. Subsequently, Darren demanded the remaining amount with interest. For assessing the rights and liabilities of Darren, Alice and Simon, the following issues need to be discussed. In English law, agreements or promises that are supported by consideration, are in general deemed to be contractually binding. Consideration requires each of the parties to the contract to receive or to be promised something in return for their having given or promised something. Consideration has the pragmatic outcome of ensuring that bargains and not gratuitous promises are binding. It provides a benefit to the promisor or a detriment to the promisee. Thus, in Currie v Misa, it was held that from the legal perspective a consideration could be a right, interests, profit, or benefit for one of the parties. With respect to the other party, it could be a forbearance, detriment, loss, or responsibility that had been given, suffered or undertaken by that party[Bur133]. In Williams v Roffey Bros & Nicholls (Contractors) Ltd, the defendants had entered into a contract to renovate a block of flats. The related carpentry work was sub-contracted to the claimant. The latter completed a portion of the work and then demanded additional remuneration stating that the amount being paid to them was very less. The defendants were placed in dire straits, as there was a substantial penalty for not completing the refurbishment in time[Bur133]. Thus, the defendants were forced to pay an additional amount to the claimant. After completing a portion of the work, the claimant ceased the work, on the grounds that they had not received the entire additional amount. The defendants hired other carpenters to complete the carpentry work[Bur133]. At court, the defendants cited the absence of consideration for their not having to pay the additional amount to the claimant. The trial judge rejected their contention and directed them to pay the same to the claimant. The Court of Appeal upheld the lower court decision and held that the claimant had provided good consideration for the extra amount promised to them[Bur133]. Similarly, in our present problem, Darren put in extra effort to complete the work within the date specified by Alice. Hence, Alice gained a practical benefit, by the completion of work, within the specified date, since she could provide the party to the guests and thereby prevent losses from cancelling the catering service. Re Selectmove Ltd was a case, wherein the Selectmove Ltd owed vast amounts as income tax and national insurance to the Inland Revenue. This company proposed to the Inland Revenue that it would pay the future tax, as and when they became due, and the arrears in monthly instalments. Subsequently, the Inland Revenue demanded the entire amount of the arrears. The Court of Appeal held that no agreement had been reached for payment in instalments, in addition, the Court pointed out the absence of consideration to support the alleged agreement[Bur133]. In addition, in D & C Builders Ltd v Rees, Denning MR had emphasised that the builders promise to accept a lesser amount as full settlement had been obtained by Rees, who had taken undue and unfair advantage of their desperate financial situation[Bea12]. Consequently, it was not inequitable for D & C Builders Ltd to retract from their promise. Conclusion Darren can claim against Alice for extra amounts under the principle of promissory estoppel. In addition, Darren can claim the balance amount from Simon, as per the decision in D & C Builders Ltd v Rees. Question Three Introduction Rose can claim against the watch shop owner for the damage to her watch, under the provisions of Unfair Contract Terms Act (UCTA) 1977. Moreover, she can claim against the car repairer for the accident and the losses suffered by her. The legal bases for these claims are: exemption clauses in contracts, Unfair Contract Terms Act (UCTA) 1977, Unfair Terms in Consumer Contracts Regulations (UTCCR) 1999. For assessing the rights and liabilities of the parties, the following discussion is to be undertaken. Rule of Law Exclusion clauses attempt to restrict or exclude a party’s contractual liability. Such clauses are frequently included in contracts for the supply of goods or services. These clauses endeavour to limit or exclude liability for defective goods or defective services provided[Cou11]. UCTA 1977 states that liability can arise from business activities or activities from business premises. Section 1(3) of this Act describes the rules relating to liability arising from business. In addition, Section 12 provides that an individual is a consumer when that individual is not part of the business. Moreover, Section 2(1) precludes limiting or excluding liability for death or personal injury resulting from negligence. Furthermore, Section 2(2) provides that when it is fair to do so, a contractual clause can restrict or exclude liability resulting from negligence. Thus, the provisions of UCTA 1977 entitle Rose to claim against the car repairer, despite her having signed the document with the exclusion clause. Section 7(2) of UCTA 1977, provides that whilst dealing with a consumer, the implied terms of conformity, quality and fitness for purpose cannot be limited or excluded[Tho96]. Rose has a claim under UCTA 1977 against the car repairer despite the exemption clause excluding liability for express or implied terms in the service contract. The UTCCR 1999 provides that a contract is unfair when there is substantial disparity in the contract, which proves to be disadvantageous to the consumer. Section 5(1) of this Act states that a contractual term that has been negotiated individually and which produces a major imbalance in the rights of the parties and the obligations emerging under the contract, to the disadvantage of the consumer, will be considered as unfair. A contractual clause that attempts to limit or exclude the liability of a party constitutes an exemption clause. These clauses can be detrimental to a party. This has resulted in changes to the law to promote fairness and to restrict the use of these clauses. In Olley v Marlborough Court, the court rejected the exclusion clause holding it to be inordinately late. In our case, Rose went to collect the watch and it had scratches on it that were not there before. She complained to the shop, which referred her to their notice, and disowned any liability for the same. Application A contractual clause does not have effect, unless it is brought to the notice of the other party, prior to the formation of the contract. Thus, in Olley v Marlborough Court Ltd, a married couple rented a hotel room, which had a notice that excluded liability for the loss or theft of articles belonging to the customers of the hotel. Subsequently, their clothing was stolen. The Court of Appeal held the hotel liable, as the contract had been completed prior to this couple occupying the room. The exemption clause was visible to them only after they had formed the contract[Law11]. Hence, the notice had no effect upon their rights. Rose did not notice the exemption clause, displayed at the rear of the shop. Since, it was not displayed prominently and had not been brought to her attention, prior to her forming the contract, it was invalid. A contractual clause is invalid if it has not been incorporated into the contract. Any exclusion clause in a contract, should be brought to notice of the party concerned. In addition, it has to be couched in distinct and unambiguous language. An ambiguous exclusion clause will be interpreted against the party that relies upon it. This constitutes the principle of contra proferentem[Out11]. In Thornton v Shoe Lane Parking, the court ruled that the other party had to be cognisant of the exemption clause’s terms. Moreover, the court stated that the exemption clause was brought to the notice of the claimant when it was no longer feasible for him to remove himself from the premises[Law11]. In our problem, Rose was not bound by the car repairer’s exclusion clause, since it was neither brought to her notice, nor had it been displayed prominently. The notice involved had been placed at the back of the shop, and the contract was completed as soon as Rose entered the premises. Under similar circumstances, in Hollier v Rambler Motors, the court concluded that there was no course of dealing, and this precluded the defendants from excluding liability. Conclusion In our problem Rose met with an accident while driving the car after it had been purportedly repaired. Under the provisions of UCTA 1977, the car repairer cannot evade liability for the death of a person or personal injury, resulting from the defective service provided by him. Hence, Rose can claim damages for the losses arising from her accident. In addition, Rose can successfully claim against the watch repairer under the provisions of UTCCR 1999 and UCTA 1977. References Beale, H., 2012. Chitty on Contracts Volumes 1 & 2. 31 ed. London, UK: Sweet & Maxwell. Burrows, A., 2013. A Casebook on Contract. 4 ed. Oxford, UK: Hart Publishing Ltd. Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd (1979) 1 WLR 401. Byrne & Co v Leon Van Tienhoven & Co (1880) LR 5 CPD 344. Carlill v Carbolic Smoke Ball Company (1892) EWCA Civ 1. Cousins, M., 2011. Architect's Legal Pocket Book. Oxford, UK: Routledge. Currie v Misa (1875) LR 10 Ex 153. D & C Builders Ltd v Rees (1965) EWCA Civ 3. England v Davidson (1840) 113 ER 640. Gillies, P., 1988. Concise Contract Law. Annandale, NSW, Australia: Federation Press. Hollier v Rambler Motors (1972) 1 All ER 399. Lawson, R. G., 2011. Exclusion Clauses and Unfair Contract Terms. London, UK: Sweet & Maxwell. Olley v Marlborough Court Hotel (1949) 1 KB 532. Out-Law, 2011. Exclusion and limitation clauses. [online] Available at: [Accessed 3 January 2015]. Partridge v Crittenden (1968) 2 All ER 421. Re Selectmove Ltd (1995) 1 WLR 474. Talaat, W. I. A. W., 2012. The Threats to the Limitations Outlining the Present Parameters of Promissory Estoppel: A Comparative Study. International Journal of Business and Social Science, 3(6), pp. 155-162. Thornton v Shoe Lane Parking (1971) 2 WLR 585 . Thorpe, C. P. & Bailey, J. C., 1996. Commercial Contracts. Cambridge, UK: Woodhead Publishing Limited. Unfair Contract Terms Act, 1977. London, UK: Her Majesty's Stationery Office. Unfair Terms in Consumer Contracts Regulations, 1999. London, UK: Her Majesty's Stationery Office. Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) 1 All ER 512. Read More