Contract Law Issues - Coursework Example

Business Law Customer Insert His/Her Name Customer Insert Grades Course Customer Insert Tutors Name 28, August, 2012. Case Law Issue The issue of law that requires determination in this case scenario is the validity of the contract that Fred entered with the salesman on behalf of the company. Since determination of the validity of the contract will also determine whether the company will be liable for breach of contractual penalties, determination of whether the company is in a position to avoid the fees or not is also dependent on the ruling of the validity of the contract under the circumstances. Secondly, an issue that must also be determined regards whether Fred in his acting capacity as the manager at the time has the authority to enter into any contract on behalf of the business while the appointed manager was on leave. Finally, the last issue of law to consider will be whether the business can legally deduct the penalties from Fred that it would incur by cancelling the contract in such an eventuality. Relevant laws Contract law will be applied in this scenario. A relevant case in this matter will be the Carlill v Carbolic Smoke Ball Co (1893) where a court of law was required to rule on the validity of a contract (Gibson et al., 2005). Validity of a contract as a general rule depends on the essential elements of the contract. Laws pertaining to breach of contract will also be relevant since they will guide determination of whether breach of contract has occurred in this case scenario. Breach of contract in contract law is usually dependent on a number of factors which will be reviewed in this paper. Also, according to the law of agency, “in the absence of actual authority, whether express or implied, a company can still be bound by the acts of an agent who has acted with apparent authority” (Tomasic et al., 2002). Finally, general employment policies and laws regarding employment will be applied in this situation to determine if Fred salary can be deducted under the circumstances. Application A contract is an agreement that outlines specifics details of an issue between different parties regarding a certain matter which is enforceable in a court of law (Turner, 2008). For a contract to be considered valid by a court of law, it must have all the essential elements. When considering whether the element of agreement exists in a given contract, it is essential that the nature of the agreement is first established, i.e. whether it is a formal agreement or an informal one. For a contract to be considered valid it must contain five important elements: consideration, lawful subject matter, enforceable terms, genuine consent and capacity to enter into contract (Turner, 2008). A contract must be valid to be upheld in a court of law; the validity of a contract is determined on the basis of five elements that have been outlined above. Where the conditions of a legal contract are met then it must be performed. One of the conditions required to certify the validity of a contract is the ‘intention to create legal relations’ (Turner, 2008). This condition is usually determined by the court of law by looking at the nature of contract that was entered by the parties. For purposes of law, agreements are classified into two major categories; domestic contracts and commercial contracts (Turner, 2008). For domestic contracts the law presumes that parties to an agreement had no intention of being legally bound, and consequently terms of such an agreement cannot be enforced legally. However, for commercial contracts as is the case in this scenario the law presumes that the parties had intention to be legally bound. As a general rule, domestic and social contract are not enforceable in a court of law since they are not considered valid in one respect; the intention to create legal relation is non-existent. However, this is not the case for formal contracts. Based on the facts of the case, it is clear that the nature of agreement that Fred entered with the salesman on behalf of the company is clearly a formal contract, more so since it was written and signed by Fred. Formal contracts on the other hand are almost always enforceable since the ‘intention to create legal relations’ is clearly present; for this matter such a contract can be enforceable (Sweeney et al., 2010). A precedent case that is relevant to this case scenario is the Carlill v Carbolic Smoke Ball Co (1893), in this case the court ruled that where all conditions of a valid contract have been met, the contract must be performed (Sweeney et al., 2010). Therefore consistent with the rulings of this case, the validity of this contract would also be upheld in any court of law if it were to be challenged on this basis since all the essential elements of a valid contract exists. This is because the other elements of a valid contract are in place such as consideration, capacity to enter into a legal contract, enforceable terms and lawful subject matter (Gibson et al., 2005). As such, the company or Fred for that matter will have no basis for terminating the contract on any of these grounds which can void the contract. Now, let us discuss the second issue of this case scenario. The law will permit agents to act on behalf of their employers within a reasonable limit under certain circumstances even if such persons are strictly speaking not within their mandate to do so; this exercise of power is referred as apparent authority (Tomasic et al., 2002). Not only does the law allow agents to exercise apparent authority, but also holds their companies responsible for any actions that they undertake. Thus, according to the doctrine of the agency law “in the absence of actual authority, whether express or implied, a company can still be bound by the acts of an agent who has acted with apparent authority” (Tomasic et al., 2002). But there are conditions if apparent authority is to be seen to have been present according to s 129(3); (1) such an agent must have “been duly appointed” and (2) must have acted within the capacity of such an appointment (Tomasic et al., 2002). But there is an exemption to this doctrine; if an agent in so doing obtains the apparent authority fraudulently without the knowledge of the company, actual or otherwise, then their employers cannot be liable for such acts. A precedent case regarding apparent authority is the Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, in this case the court while voiding the terms of a contract as entered by Peter on the grounds that apparent authority did not exist, also pointed out that apparent authority is all that is needed for a company to be held responsible for the actions of its agents (Nickolas, 2012). Now based on these principles of law, let us apply our case scenario to the facts of the law. First, the fact that Fred was appointed by the manager in the acting capacity for the 2 weeks that the real manager was away means that he was duly appointed. Secondly, Fred during this period entered into a contract for provision of cable TV after having considered the facts; in doing so, he acted within the limits of his office as an acting manager at the time which is allowed. So far therefore, the court will find the notion of apparent authority to have been proper. Also consistent with the ruling in the case of is Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, the court will almost certainly hold that Fred had indeed apparent authority at the time which he exercised within the limits of the manager’s office. And based on this, the court will consequently find no grounds for voiding the contract as entered by Fred and the salesman for two reasons; (1) because the contract was valid and (2) because Fred had indeed apparent authority at the time. Since the contract is valid and cannot be voided under the circumstances, the question then becomes, will the business incur penalties for early termination if it was to terminate the contract anyway despite its validity? If this was to happen this will be interpreted in a court of law as breach of contract by the business which will most certainly result to penalties, assuming that the contract had outlined such conditions in its clauses or otherwise. When a contract has been broken a breach is said to have occurred. Breach of contract in legal terms is used to describe actions that have been undertaken by one of the parties in contravention to the binding agreement as originally entered between the parties (Nickolas, 2012; Bitner, 2010). It is also used to describe cases where the terms of an agreement as entered between various parties is not honored according to the articles of the agreement (Murdoch and Hughes, 2008). There are three grounds upon which a court of law can find breach of contract to have taken place. One, a breach of contract occurs where one of the party’s actions means that other parties to such a contract are unable to perform. Secondly, the law states that a contract is in breach where one of the parties undertakes actions that are not in accordance with the “intent of the contract” (LectricLaw.com, 2008). Finally, a contract is said to have been breached where one of the parties refuses to completely discharge duties as required under the terms (LectricLaw.com, 2008). Since we have already established that this contract as entered between Fred and the salesman was valid in all respects, then any termination at this stage by the business establishment will be interpreted as a breach to the contract. Based on the above three circumstances through which breach of contract can take place, it would appear that if the business establishment was to cancel this agreement the salesman can sue the business for breach of contract through failure to honor its duties as agreed. Lastly, let us examine the last issue in this case scenario which regards the legality or otherwise of the business recovering the fees that it stands to lose from Fred in the event that it cancels the contract as we have seen. Foremost, for the business to effectively recover the fees resulting from cancellation of the contract from Fred as it has threatened, it will have to first show that Fred actions in this matter was illegal or that it contravened his employment policy as detailed in his employment contract. Based on the case scenario there is nothing in Fred’s actions that indicates his entering into a contract with the salesman on behalf of the business was illegal. This is more so since the contract itself was also legal in all respects. Given that the business will have no grounds to make such a claim, then perhaps the next probable ground to rely on in order to have Fred pay will be by looking at his employment policy. Although, there is nothing in the company’s business policy that we know of that prevents Fred from entering into any contract on behalf of the business, it is possible to make a fair assessment that no such policy exists because it has not been mentioned in the case scenario. In any case, Fred when entering into the contract in fact did so in his capacity as the acting manager using his newly gained apparent authority which he had at the time. Since in order for the business to find Fred culpable will require separation of the manager’s office authority from Fred’s actions as a person, it will be impossible then to lawfully deduct the fees incurred from cancelation of the contract from say Fred’s salary or any other benefits that the business owes him. But if this was to happen and Fred is deducted the fees incurred from the cancellation of the contract, then Fred can successfully sue his employer on various grounds such as illegal deduction of salary or even breach of his employment contract. Conclusion In all the issues raised in this case scenario, this paper has systematically reviewed the facts of the case, discussed precedent cases relevant to this scenario and arrived at hypothetical conclusions. Regarding the validity of the contract as entered between Fred and the salesman, this analysis has shown that the contract remains valid in all respect and voiding it will certainly attract penalties as the salesman has warned, or more rightly as detailed in that agreement. Also, based on the facts of the scenario, Fred appears to have acted within the limits of his authority as the acting manager for all intents and purposes when entering into the agreement on behalf of the business. Finally, based on this analysis, the indications are that the manager cannot deduct the fees emanating from cancellation of the contract from Fred legally if this situation was to get to that point. This is because if that was to happen Fred will have a strong case if he was to sue the business for illegal deduction of his salary. References Bitner, S. (2010). Breach of Contract Cases. Retrieved from http://www.buzzle.com/articles/breach-of-contract-cases.html Gibson, A., Rigby, S. and Tamsitt, G. (2005. Commercial Law: In Principle. 3rd edition, Sydney: Thomson Law Book Co. LectricLaw.com. (2008). Nonperformance and the Breach of Contract. Retrieved from http://www.lectlaw.com/files/bul08.htm Murdoch, J and Hughes, W. (2008). Construction contracts: law and management. London: Taylor & Francis. Nickolas, J. (2012). Business Law. Sydney: John Wiley and Sons. Sweeney, B., O’Reilley, J. & Coleman, A. (2010). Law in commerce fourth edition, Butterworths, Sydney. Tomasic, R. Bottomley, S. & McQueen, R. (2002). Corporation Law in Australia. Sydney. The Federation Press. Turner, C. (2008). Australian Commercial Law, 27th edn. Victoria: Thomson Reuters. Read More