Freds Salary When Contract Is Valid - Case Study Example

Research Essay Businesses interact in many different ways while involving in activities such as leasing, business transactions, acquisitions and mergers and contracts. The formation of these businesses and their interactions are conducted under the principles of law of business1. There are existing principles that make a contract valid and if any of which is left out then the contract is deemed invalid. The presented case is of Fred entering into a contract with a Cable TV salesman to install a cable TV at the customer waiting area. This is done without the consent of Fred’s Manager who refuses to pay the salesman claiming that there is no budget for that. If they breach the contract they will have to pay cancellation fee which the manager insists will be paid from Fred’s salary. This paper will discuss if the contract is valid or if it can be avoided and if the company can avoid paying the cancellation fee, and if the fees are to be paid can they be recovered from Fred’s salary? A contract of sale is where a seller agrees to or transfers goods to the buyer for a price and happens between two parties2. In this case the Cable TV salesman and Fred on behalf of the company entered into a contract with the salesman transferring the goods to Fred. A contract of sale is valid when there is an offer and acceptance to buy or sell. An offer is a way of showing willingness to enter into a contract aiming at binding the offeror if the offeree accepts. A valid offer is not ‘invitation to treat’ where an offeror invites offers from different parties and chooses one or several and rejects the rest; auctions and tenders3. In the case of Fred and the salesman, the salesman offered the Cable TV service to Fred and invited him to accept. Acceptance on the other hand is agreeing to the offer and its terms. For the contract to be binding the acceptance equals the offer. All terms of the offer must be accepted by the offer. Fred thought it was a good idea to have the Cable TV installed at the customer waiting area and accepts the offer by the salesman, and this makes the contract valid. Another rule of acceptance is that the offeror must be communicated to by the offeree, or an authorized person by the offeree, otherwise there will not be an existing contract4. There was some kind of communication of acceptance to the salesman by Fred that is he accepted the installation of the Cable TV to take place. The salesman offered to sell the Cable TV to Fred who accepted making their contract valid. During a contract of sale goods may be delivered immediately and payment of price made there and then, payments or delivery of goods made by installments, or goods delivery or payment are postponed5. In the case of Fred and the salesman the goods were delivered immediately but payment was postponed to a later date. Most companies use this mode of delivery and payment because of procedures of finance department. There is a breach of contract on the side of Fred for failing to pay the Cable TV salesman. A breach of contract is a legal cause of action in which terms of condition agreed-upon in a binding contract have been violated by one party or more. When one party fails to owner their side of promise or performance as agreed, he is said to breach the contract6. In the case of Fred and the salesman if the terms of the contract involved being paid after the installation of the Cable TV or after the agreed period of time, then failure to pay the salesman leads to a breach of contract for Fred. The contract they had is binding and it will have more weight when taken to court to prove its violation. However, this will not be evident if the terms and conditions of the contract were not clear during the formation of the contract. The duties and responsibilities of each party need to be discussed and agreed upon as well as the charges to be incurred if either of the party fails7. If the contract between the Cable TV salesman and Fred included the clause of paying the cancellation fee in case the company refuses to pay then the contract is binding to Fred and the salesman should be paid. However, if that clause missed in the contract then the company may avoid paying the cancellation fees. In business law the unpaid seller has rights. The unpaid seller is a seller of goods who has not been paid the whole price or has received payment through an instrument that has been dishonored: bill of exchange. The unpaid seller has rights against goods and rights against the buyer. The rights of an unpaid seller against goods may be a right to lien where he can retain the goods and deliver them only when they are paid for, right of stoppage of goods in transit until the buyer pays for them or rights of resale8. In the case of Fred, the salesman has a right to resale the cable TV service since the company has refused to pay for it. The salesman also has a right against the buyer (company) personally to suit for damages for non-acceptance. A seller has this right where a buyer refused to pay for the goods or services, the buyer can be sued for damages for non-acceptance. Recovery of the loss is sought by the seller due to the buyer breaching the contract. If after receiving the goods the buyer breaches the contract, the seller sues for the price of the goods or for payments as well as incidental damages9. In this case, the company is obligated to pay the salesman the whole price of the service as agreed in the contract plus the incidental damages. In fact the salesman has been a bit lenient to only demand cancellation fee putting in mind that the service has already been delivered and is in use. There is an issue of law of agency involved in the presented case of Fred, his boss and the salesman. An agency was formed whereby one person (Fred) acted for another (Manager). Fred is the agent while the manager is the principal. Agency is created by ratification, necessity (acting for another in situation of emergency without express authority), contract (written, implied, oral or express), or estoppel10. Under this case, Fred acted on behalf of the Manager, however, there was no direct authority given to him to act on his behalf in purchase of things. In fact he was told “Leave things as they are”. There are duties owed to the principal by the agent: duty to remain loyal, obey the principal’s instruction, account for the amount of money spent, protect confidential information and act with skill11. However, Fred did not obey his manager’s instructions and acted out of his own will. He changed things around by installing a Cable TV without asking for instructions from the manager. Agency is respected when an agent renders his duty to the principal by disclosing all matters coming to him concerning the subject. It is important for the principal to know for the sake of his own guidance and protection. The agent is also supposed to act in the principal’s best interest and in case of any conflicting interest they must be reported to the principle. In addition, the agent is not supposed to take advantage of opportunities provided to the principal without informing the principal12. Fred did not inform his manager of his interest in installing a Cable TV at the customer waiting area. Though the idea was good and could benefit the business, he was not supposed to assume that the company needed it at that particular time. It could have been the right thing to have but at the wrong time. Fred saw the opportunity of the Cable TV but did not communicate to his manager. He did not act in the best interest of the manager otherwise if he did, the manager would have instructed him not to enter into a contract with the salesman because of lack of available budget. If an agent breaches his duties he is liable to the principal. Agents therefore need to understand their reliability to the principal in order to perform their duties as required. In case anything goes wrong and the third party is affected the principle is responsible for compensating the third party because the agent acted on his behalf13. Fred acted on behalf of his manager and so the manager is responsible for paying for damages caused for cancellation of the contract, in this case paying the cancellation fee. Even though the manager was not disclosed during the contract with the salesman, Fred acted in his position as one with actual authority and as the face of the company. Therefore, the manager had to comply with the contract. This case is similar to Watteau v. Fenwick with Watteau being the plaintiff and Fenwick being the defendant. Watteau sold some goods to Humble believing that he was the pub manager and the owner. He later learnt that Fenwick the Defendant was actually the owner and demanded him to pay the balance of goods that Humble purchased. It was ruled that a principal who is not disclosed can be held liable for the agent’s action who acts with authority in the position of the agent even though the agent has the actual authority. The facts provided were that the owner of the pub was the Defendant who also managed it. Defendant had given instructions to Humble not to purchase anything outside mineral waters and bottled ales but ale Humble still entered into a contract with Watteau for purchase of cigars. Watteau later discovered who the real owner was and went ahead to collect his dues from the Defendant14. The salesman expects the manager to honor his side of bargain as made by Fred as he acted as one who had been given authority to do so. According to the law of the agency, if the principle pays damages for the agent’s improper acts he can take action against the agent. Since Fred acted without the consent of his manager, the manager has a right to take action against him. In this case the manager would pay for the cancellation fee from Fred’s salary. Fred’s manager may deem the contract void for misrepresentation in order to avoid paying the cancellation fee. Rendering a contract void means it was never existed in the first place. Violability takes place when one party of the contract declares the contract to be ineffective. Misrepresentation is the provision of a false statement by one party to induce the other party to enter into a contract15. According to the case Fred was instructed by his manager to leave things the way they are, meaning he was not authorized to change anything with the company or even make transactions without seeking for advice or instruction. Since Fred was in charge at the time the Cable TV salesman came along he could have taken on the responsibility of a manager and convinced the salesman that he had authority to enter into a contract on behalf of the company. Otherwise, the salesman would not have entered into a contract with him knowing that he was not the decision maker. Thus, Fred may have given false information to the salesman about his own position and authority in the company, inducing the salesman into the contract. According to the cases of Gordon v Selico there is a possibility that words or conduct can make a misrepresentation16. In the case of Fred and the salesman the court can render the contract voidable because the contract continues to bind Fred at his own will. There is also recognition of effects of transactions of the contract having taken place. This matter can be taken to court by the third party (Fred’s Manager) to seek for rescission where each party is restored to their positions before the contract took place, and thus avoiding paying the cancellation fees17. The contract is valid as all terms and elements of a contract were present. This is binding Fred and thus the business need to pay the salesman his dues. In addition, Fred acted like an agent on behalf of the manager who is the ‘undisclosed principal’ which also makes the contract valid. However, the contract can be avoided on claims of misrepresentation by Fred. The manager can therefore seek rescission from the court in order to render the contract void. Bibliography Barnett, Randy. E., Contracts (Aspen Publishers, 2003). Baze, D., Common Law of Agency. A supplemental Chapter for Oklahoma real estate principles (B&B Publishing, 2009). Bhana, D., et al., Student's Guide to the Law of Contract (edn 2., Kluwer, 2009). Casebriefs LLC, Casebriefs, [web page] (2012) , accessed 13th Sept, 2012 Clarkson, Kenneth W., et al., West's Business Law: Text and Cases : Legal, Ethical, International, and E-commerce Environment (10th edn., Cengage Learning, 2006) Dennis, Hynes J., Agency, Partnership, and the LLC in a Nutshell. (2nd edn., St. Paul, Minn: West Group, 2001). Goldman, Arnold J and Sigismond, William D., Business Law: Principles and Practices (7th edn., Houghton Mifflin, 2006). Gregory, William A., The Law of Agency and Partnership ( 3rd edn., St. Paul, Min: West Group, 2001) Law resources, [web page] (2012) < e-lawresources.co.uk>, accessed 13th Sept, 2012. McKendrick, E., Contract Law - Text, Cases and Materials (Oxford University Press, 2005) Miller, Roger L., Modern Principles of Business Law: Contracts, the Ucc, and Business Organizations (Cengage Learning, 2011) Miller, Roger L and Cross, Frank B., The Legal Environment of Business: Text and Cases : Ethical, Regulatory, Global, and E-commerce Issues (7th edn., Cengage Learning, 2008). Miller, Roger L., Fundamentals of Business Law: Summarized Cases (9th edn., Cengage Learning, 2012). Miller, Roger L., Fundamentals of Business Law: Excerpted Cases (3rd edn, Cengage Learning, 2012) Samuelson, Susan S and Beatty, Jeffrey F., Introduction to Business Law (edn 3., Cengage Learning, 2009). Read More