Fundamentals of Business Law - Case Study Example

Business Law: Analysis of different of cases Name Institution PART A: Case of Peter (a) Peter and Billy The principle or issue of law The standard of the law is that the formation of a valid contract enforceable by law requires that both the two parties had the intention of being legally bound by the agreement. The rules of the law relevant to the issue of the law Now, various statements may be involved in the preliminary steps of contract development. The formation of a legally enforceable contract has certain essential requirements: intention, agreement, and consideration. Of course, these factors follow after some offer has been issued by one of the parties to the other. An issue emerging out of some agreement will be subject to the rule of law depending on the intentions of the two parties involved. An agreement will be considered a legally binding contract when there are indications that, at the time of agreement, the two parties intended that it be subject to enforcement by the law1. The agreement need not to be put down into writing in order to justify that the parties had intention to be legally bound. Rather, the courts can consider other factors surrounding the subject of discussion. Initially, the courts will be guided by the presumptions that when two parties were making some negotiations in a business context, then it is highly likely that the parties intended to be legally bound by such an agreement. On the other hand, agreements on domestic and other social contexts may be presumed not to be legally binding unless either of the parties can provide further evidences for an enforceable contractual agreement2. The case of Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 is one in which the courts established that even though the agreement was in a social context, it was intended to be legally binding. As such, Ermogenous was entitled to leave allowances from the Greek Orthodox community. In handling court cases, judges across the world often employ un-enacted laws (judge-made or case-laws) to justify their decisions34. The courts will presume legal obligations to agreements made in a commercial context. In the case of Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 AII ER 117, the company had promised that it would give free coins to motorists who purchased its fuel. The court established that, since this was a commercial setup, the company had intended to be legally bound by its offer to give commemorative coins to customers. Similarly, the courts usually apply a universal term of good faith to contractual agreements. This requires that the parties should ‘exercise their contractual powers honestly and reasonably, and not capriciously or for extraneous purposes’5. In the case of Meehan v Jones [1982] HCA 52; (1982) CLR 571, Meehan was to buy a piece of land from Jones on condition that he (Meehan) received satisfactory financial approvals. The approvals delayed and Jones revoked the contract stating that the purchaser had the discretion to decide if the terms of finance were satisfactory. The issue before the court was whether the terms regarding finance gave the buyer a complete discretion that the contract was void for uncertainty. The court ruled that there needs to be honesty in such discretion and that there was certainty in the contract6. The application of good faith as universal term was also seen in the case of Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, in which it was established that through good faith, Alcatel was supposed to install safety apparatus in the building leased from Scarcella. Similarly, in order to ascertain the intention of the parties to make a statement part of the agreement, courts may consider the closeness between the statements and the contract that is finally formed7. The courts will generally hold that if the statements are relatively close to the event of contract, then it is highly probable that the two parties had the intention that it becomes part of the contract. Moreover, even though expression of opinion is not necessarily a statement of contract term, the courts may consider the differences in knowledge and skills of the two parties in relation to the subject of the contract8. The courts have an argument that when two factions say A plus B are negotiating on subject matter in which A has good professional background then it is highly likely that party B will take him seriously. It is then considered that such an expression of opinion was a representation intended to be part of the contract.9 Application of the law It is necessary to scrutinize the circumstances that surrounded the agreement between Peter and Billy acting on behalf of Booky Wooky Publishing Company. The task is to determine, given the circumstances, whether or not the agreement between Peter and Billy as a publisher was intended to be legally binding. Now, the agreement was not made on a social or domestic context. It is not stated that Billy has any relations with Peter and neither are they reported as friends. This then implies that any agreement whatsoever, between the two, would only be made on the commercial/business context. Thus, the courts will presume that Peter and Billy intended to be legally bound by these agreements. Billy will then have to issue other statements rebutting such assumptions. The case is quite difficult as each party has a point of argument. Peter will bank on the court’s presumption that the agreement was made in the business context. He has a piece of work to be published and is seriously looking for a publisher. Thus, any agreement with a representative from a publishing company must be legally binding. Besides, the task of publishing is itself governed by other legislations such as the copyright act. Thus, it is highly likely that when engaging in an agreement of this nature, then the two parties had the intention of being legally bound. Similarly, an agreement is made stronger when some contract is written down and signed. Peter can argue that Billy presented to him a contract letter to be signed and mailed back to the publishing company. Moreover, Billy appealed to Peter on the urgency with which he had to respond to this mail. Even though Billy can argue that he withdrew the offer before it was accepted, Peter may hold that he signed the contract and sent before Billy revoked the arrangement through another mail. Similarly, it is just stated that Billy sent a letter of publishing contract to Peter. However, the nature of the contract signed is not revealed to see the kind of professionalism and seriousness involved. The terms and conditions contained in the contract letter can help decide whether or not it needs to be enforceable by law. Even though the courts may not intervene on the fairness of the deal to each party, the contained terms will provide some direction. If the rates given by Billy are close to the average rates the company applies to its clients, then their intention must have been to make an agreement enforceable by law. However, significantly lower or higher rates may favor Billy. Similarly, there are opinions that might favor Billy’s position of no legally binding agreement. Firstly, the encounter between Peter and Billy is very casual. Peter had opted to use an agent, Raymond, who later settled on Billy. It is not stated clearly a point in which Raymond engaged Billy and Peter to sign a deal. Actually, Billy got excited at the first glance of Peter’s work and decided to contact him. Billy can equally argue that if there was an intention of a legally binding agreement, then it would between him and Raymond and not Peter. Besides, Billy can argue that after issuing the letter of publishing contract to Peter, he realized that the piece of work was substandard and decided to withdraw the offer. Now, an offer can be withdrawn when it has not yet been acknowledged by the other faction. In light of this, Billy changed his mind and sent a cancelling email before Peter had replied the initial email. In other words, there was no proper agreement. This way, he can justify that he withdrew the offer before it could become a binding agreement. Similarly, there are no indications of Peter’s commitment to the deal. To this point, it is not stated that Peter had invested anything in the deal. It is also not indicated that, following their intended deal, Peter had made other financially arrangements, which would be seriously jeopardized by the aborted deal. Peter was, indeed, in need of a publisher, yet it is not stated the urgency with which he wanted the article published. The courts may decide that since no much time has lapsed and no compensation has been effected, then Peter can equally look for another publishing company. Conclusion The agreement was made on a business context and it needs to remain a legally binding agreement. Even though the other circumstances such as Billy’s immediate withdrawal of the offer will favor the position that the agreement was not legally binding, Billy should have acted in good faith; honestly and with professionalism. There was possibly an intention for an agreement enforceable by law in as much as the agreement was not made. (b): Peter and Raymond Issue of the law In this situation, the issue of the law is that other than evidence of the two parties’ intention of an agreement, a law enforceable contract has other requirements such as offer, acceptance and consideration. The rules of the law relevant to the issue of the law A legally binding contract will be defined by four key elements: an offer, acceptance, intention of legal consequences, and consideration. Each of the party must then adhere to these terms after they have been established. Breach of the terms will then call for law enforcement. At the beginning of negotiations, one of the parties will issue an offer to the other. If party X gives some offer to party Y, then it signifies the former’s willingness to enter into some deal with the latter. The offer implies that Y needs to understand the terms in it and provide assent in order to make a binding agreement. The offer needs to be defined in terms that can sufficiently be understood and interpreted by other parties such as the court. Then there needs to be an acceptance of offer by party Y. Acceptance shows that Y assents to the terms of offer as provided by X. It should not entail alteration of the terms of offer. Rather, if Y is not content with the offer, then he needs to engage in bargain by issuing a counteroffer to X. There will be acceptance if X assents to the counteroffer. Similarly, a legally binding contract will be defined by a valuable consideration in the agreement. Consideration will refer to what one party will benefit following the promise by the other part. A legally binding contract needs not to have monetary consideration. Courts may recognize the fact that a different oral contract has been created with additional terms to the main contract.10 However, the courts must establish that there were promissory statements issued by each party that became terms of this collateral agreement. In the case JJ Savage & Sons Pty Ltd v Blakney [1970] 119 CLR 435, Blakney entered a contract to buy a motor boat from Savage. Before the purchase, he sought advice from the company on good engines, which was given. The engine he chose turned out to be lower quality. The issue brought before the court was that there is a parallel (collateral) agreement that would influence the main contract. The court ruled that there was no such collateral agreement because Blakney did not seek a promise from Savage on the engine’s performance.11 Application of the law Given that a legally binding agreement has been made between Raymond and Peter, it is necessary to determine if the other requirements are met. Now, there is an offer at the beginning of the negotiation. Peter wants an agent to link him with a publishing company. Raymond offers to perform this task on the terms that he will receive 8% of the sale of each book. This is the only term that is stated explicitly. Peter accepts the offer and does not suggest any alterations at this point. There is definitely a valuable consideration (8% of the sales), which Peter has promised to pay to Raymond. The issue in the court is that after publishing the article, and after huge sales, one of the parties has not fully abided by the terms of the settlement. The court will rely on the conditions that were established at the time of agreement and Peter will found guilty of bringing in new terms to the contract. The fact that Raymond owed him some money dating five years back was very irrelevant in this case. He ought to have raised the issue through a counter offer to Raymond at the initial stages of agreement. Just as the case of JJ Savage & Sons Pty Ltd v Blakney [1970] 119 CLR 435, Peter did not seek a promise from Raymond that he would deduct part of the commission towards back payment of reduced rental charges. Besides, the agreement to charge a reduced rent was most likely made on a social or domestic context given that Raymond was his sister’s husband. Such agreements could not be introduced into a business deal. The details of the earlier agreements are also not stated here. As such, it is most likely that there were no legal obligations on Raymond to pay these charges. Conclusion Raymond can successfully enforce the contract against Peter as the latter acted upon new terms not initially contained in the contract. PART B: The distinction between a term of contract and mere representation When two parties attempt to make an agreement towards some contract, there are many statements that they make. Some of the statements will not be finally embodied as terms of the agreement. A plain illustration is a statement, usually in the form of a representation, which does not end up being part of the contract.12 The courts have certain guidelines that may be useful in shaping whether or not certain declaration was intended to be part of a contract. Contract terms are legally binding and breach of the terms by either party justifies enforcement by court. On the contrary, a breach of mere representation presents very limited liabilities to the defendant. Essentially, an agreement will contain certain elements in order to be regarded as a contract and not mere representation. Firstly, there is need for a clear statement of an offer by one party say A to do something for another party, B. For instance, if A has a rental house and there are negotiations to lease it to B, then A issues a statement that the house usually goes for $900 a month and demands the same rate from B, then this becomes an offer. The offer is not yet binding and the party providing the offer may also withdraw any time. The next element, which is the next step in developing a contract, is acceptance. When one party has issued a statement of offer, the other party then decides to accept or reject it. When the offer is accepted, then the terms of the statement will remain unaltered. Alternatively, the second party can initiate negotiations on the terms of offer. The negotiations will entail offers and counter offers between the two parties until an agreement is reached. The final offer that will be accepted by the two parties will seal the agreement and become terms of the contract. This agreement can be made verbally or the two parties may put the agreement into some writing to make it more legally binding. In trying to establish if some legally binding contract was agreed upon by two parties, courts will often consider the significance of the matter that is covered in the statement to either of the two parties.13 In the event that a representation of one party is significant to the other party, the courts will more often rule that the parties intended that this representation becomes a term of the contract. The other important requirement for a contract term is the intention of the legal consequences of breach of such terms. A statement will be a mere representation or term of contract depending on whether or not the two parties intended that it becomes part of the agreement.14 Agreements on a social or domestic context are not necessarily legally binding. However, the case of Merritt v Merritt [1970] 2 All ER 760 provides an example of circumstances in which the courts can invalidate the assumptions that domestic agreements are not legally binding. When making a contractual agreement, it will be assumed that the two parties understand that the agreement can be enforced by law. This is not literally recorded as part of the agreement. On the other hand, two parties making an agreement may decide that it should not be legally binding. Now, this ought to be specified in the contract, so that it is not subject to law enforcement. In the case of Causer v Browne [1952] VLR 1, it was established that a drycleaner had indicated in the ticket he would not bear liability of loss or damage to the garment.15 Finally, a term of contract will be defined by a valuable consideration. This refers to what one party gives to the other in the agreement. In the above example, A issues a rental house to B who, after accepting the offer, will promise to pay a monthly rate of $900. When enforcing the law, the courts will often not consider whether or not the rate one party had unfair deal on the other, but rather bank on the agreement that had been sealed. Cases cited Causer v Browne [1952] VLR 1 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117 JJ Savage & Sons Pty Ltd v Blakney [1970] 119 CLR 435 Meehan v Jones [1982] HCA 52; (1982) CLR 571 Merritt v Merritt [1970] 2 All ER 760 Works cited Gillies, Peter. Concise Contract Law. Sydney: Federation Press. 1988. Lambiris, Michael. First Principles of Business Law. Sydney: CCH Australia. 2011. Lambiris, Michael & Laura Griffin. First Principles of Business Law. 2013 edition. Sydney: CCH Australia. 2013. Latimer, Paul S. Australian Business Law 2012. Sydney: CCH Australia Limited. 2012 Miller, Roger L & Gaylord A Jentz. Fundamentals of Business Law: Excerpted Cases. 2nd ed. South-Western: Cengage Learning. 2010 Read More