Contract Legal - Case Study Example

The Scenario Ramsey MacDonald owns a small hotel on the outskirts of Nottingley and employs Atif as the resident manager. Atif works hard at his job but can be very disorganised. The hotel is about to be visited by a representative from a world famous hotel guide. Anxious to receive a good review, Ramsey has promised Atif a bonus of £500 if he does his job well and ensures that the visit runs smoothly. The town council, keen for the hotel to do well and so boost the local tourist industry, has also promised Atif a bonus of £300 if he does his job well on the day of the visit. Ramsey has also asked a number of his close friends to help out in the hotel restaurant on the day of the visit so that there are no delays in serving meals to any of the guests. On the day of the visit, Atif put in an extra special effort and ensured that everything was well organised. Ramsey’s friends duly helped out in the restaurant as requested. The representative from the hotel guide was very pleased and gave the hotel an excellent review. Ramsey was delighted and promised to pay £50 to each of his friends who had helped out. Atif has recently been using all of his free time to redecorate his bedroom in the hotel at his own expense. Ramsey was so impressed with the finished bedroom that he has promised to pay Atif £100 to cover the cost of the materials used. However, Ramsey has now received a very good offer for the hotel and so has decided to sell it. He is therefore now refusing to pay the £500 bonus promised to Atif or any of the money which he promised to pay to his friends. Ramsey is also denying any obligation to pay Atif the £100 which he promised him in respect of the redecoration of the bedroom. The town council, concerned about the future of the hotel under a new owner, has also now refused to pay Atif the promised £300 bonus. Issue Whether or not the verbal promise of both Ramsey MacDonald and the town council to Atif can be legally enforceable. Discussion According to Garner (2004), “A contract is an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law,” (p. 341). As explained by Marsh and Soulsby (1987), in order for the court to intervene and make any person liable for damages in case one of the parties breaks the agreement, the said agreement must have the following important features: parties must have the intention to create legal relations; there must be a firm agreement between the parties showing the unconditional acceptance of an offer; a consideration wherein each of the parties provide or promise to provide something in exchange for what the other is to provide; for certain types of agreement, it must be in a specified form to be valid; it must be in definite terms in order for the courts to determine what the parties have decided upon; and finally, it must be legal and not contrary to public policy (Marsh & Soulsby, 1987). In cases of so-called “friendly, social or domestic natured agreements,” there is a heavy presumption that the parties did not have in mind the intent to establish a legal relationship. In the recent case of Wilson v. Burnett (2007), the parties went to a bingo hall together where, B luckily won a local and national prize (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). W asserted that they agreed to share any winnings over GBP 10 equally between them (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). B however countered that they had a discussion but did not make such an agreement (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). The judge held that he was not satisfied that there was indeed an intention between the parties to create legal intentions, hence an appeal by W (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). The issue here was “whether there had been a sufficiently certain binding agreement between W and B on an earlier occasion,” (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). The Court held that Ws statement of what they said was agreed, taken alone, could scarcely stand as an agreement binding and enforceable in law (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). Hence, the judgment made was sufficiently adequate (Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). Secondly, as explained by Russell and Locke (1992), there must be an agreement between the parties showing an offer made by the offeror and an acceptance of the offer by the offeree (p. 150). Offer must be comprehensible and must have the details of the contract whilst the acceptance must be communicated to the offeror without variation from the terms or must exactly match the offer (Russel & Locke, p. 151). A variation or deviation from the original offer constitutes as a counter-offer which if not accepted by the original offeror, no agreement is then made ((Russel & Locke, p. 151). Thirdly, as explained by Johnson (1986), a promise can only be legally enforceable if there is an act or promise given in return for it, or the existence of an element of reciprocity called consideration (pp. 1 -3). Consideration is “something given, promised or done in exchange or the act, forbearance or promise of each party is the price for which the promise of the other is bought” (Marsh and Soulsby, 1987, p. 106). Something already done and finished by one party at the time the other party makes a promise to him cannot function as a consideration (Marsh and Soulsby, 1987, p. 106). As illustrated in the landmark case of Eastwood v. Kenyon (1840), the plaintiff in this case who had been the guardian of Miss Sutcliffe, spent money to raise her and give her education (Eastwood v. Kenyon, 1840, 11 A & E 438; 113 ER 482). When the girl became of age, the girl promised her guardian that she would repay her and even repeated this promise when she got married (Eastwood v. Kenyon, 1840, 11 A & E 438; 113 ER 482). When the girl reneged on her promise, the Court held that the guardian could not recover from the said broken promise as the consideration for them was past (Eastwood v. Kenyon, 1840, 11 A & E 438; 113 ER 482). Even in the case of Roscorla v. Thomas (1842), the court stressed that “a consideration past and executed will support no other promise than such as would be implied in law,” (Roscorla v. Thomas (1842) 3 QB 234) Although a contract may be spoken or written, there are, however some contracts which must be in a specified form (Butler, 1991, p. 117). Some contracts must be by deed, some on the other hand, must be in writing but not necessarily by deed such as bills of exchange, cheques and promissory notes, and some must have at least a written evidence of certain terms of a contract such as contracts of guarantee and contracts for the sale of land (Butler, 1991, p. 117). In the case of Hogg v. Hogg (2007), the oral agreement between the parties in that H would be remunerated at a higher rate than he actually received whilst working for O, was held not binding by the court since there was no record of the said oral agreement (Hogg v. Hogg, 2007 WL 2817977 (Ch D), (2007) EWHC 2240). Without such record or evidence, he was then not entitled to such a remuneration (Hogg v. Hogg, 2007 WL 2817977 (Ch D), (2007) EWHC 2240). Courts consider the availability of evidence the claimant presents to prove the existence of a contract. In the case of ING Lease (UK) Ltd v Harwood (2007), the Court held that no contractual agreement existed between parties, H and L, which provided that if H took over the computer company he would not be personally liable for its debt, because in the first place, the parties had not intended their discussions to have contractual effect (ING Lease (UK) Ltd v Harwood, 2007 WL 3001741 (QBD), 2007) EWHC 2292). The Court held that there was no evidence that the parties planned any discussions to amount to an oral contract and there appears to be no record of any such agreement ever being reached (ING Lease (UK) Ltd v Harwood, 2007 WL 3001741 (QBD), 2007) EWHC 2292). The terms of the agreement must be definite to make it a binding agreement (Marsh & Soulsby, 1987). In the case of Aboualsaud v Aboukhater (2007), the claimant (W), a financial adviser and manager, claimed commission from the defendants (B and T) on the sale of a hotel under an alleged binding oral agreement for introducing a party whose group of companies (K) was one of the members of a joint venture that eventually purchased the hotel (Aboualsaud v Aboukhater 2007 WL 2573870 (QBD), (2007) EWHC 2122). The deal was put on hold, but W still maintained that the introduction of K remained the effective cause of the eventual purchase of the hotel (Aboualsaud v Aboukhater 2007 WL 2573870 (QBD), (2007) EWHC 2122). In the deciding the case on the evidence, the Court held that there was no concluded agreement between the parties relating to the payment of commission to W and no intention that there should be a binding legal agreement as the introduction made was not an effective cause of the sale of the hotel and the sum was also not clearly agreed upon (Aboualsaud v Aboukhater 2007 WL 2573870 (QBD), (2007) EWHC 2122). Applying the above-mentioned formalities of a contract to the claim of Atif, it is still unclear if the parties intended to create legal relations. A promise standing alone as in the case of Wilson v. Burnett, cannot by itself be enforceable under the law. There must be other evidence presented that in case one of the parties do not fulfil what is due to them, they would be held liable and would pay the compensation. There must be sufficient testimony also aside from mere statements of Atif in order that he may claim from them. There was unconditional acceptance, however in terms of Atif’s acceptance of the £500 bonus from MacDonald and £300 from the town council in exchange for expected smooth operation of the hotel. The promise of a bonus from MacDonald and the town council was sufficient consideration on the part Atif while the smooth operation of the hotel and in return a good review was the sufficient consideration for both MacDonald and the town council. However, the friends of Atif who already helped in making things run smoothly for the operation of the hotel which MacDonald learned only after it was done, is already be considered as a past consideration and hence not legally enforceable. As explained by Marsh and Soulsby (1987), something already done and finished by one party at the time the other party makes a promise to him cannot function anymore as a consideration (p. 106). Furthermore, the redecoration of the bedroom which was done at Atif’s expense and which MacDonald only after the redecoration is also a past consideration, the promise of which is not enforceable. Finally, in this case, although there is no required form for a contract such as this, assuming its existence, there still must be other evidence to prove clearly the definite terms of the agreement sufficient for the appreciation of the Court. Testimony of Atif alone would not be sufficient to establish the existence of a contract. Conclusion Because of the lack of some of the important features and the lack of evidence sufficient to establish the existence of a contract, the promise made by MacDonald and the town council cannot be legally enforceable. References Aboualsaud v Aboukhater 2007 WL 2573870 (QBD), (2007) EWHC 2122). Butler, J. (1991). Business Law. UK: Oxford Business Publishing. Eastwood v. Kenyon, 1840, 11 A & E 438; 113 ER 482 Garner, B. (2004). Black’s Law Dictionary. St. Paul MN: West Publishing Co. Hogg v. Hogg, 2007 WL 2817977 (Ch D), (2007) EWHC 2240). ING Lease (UK) Ltd v Harwood, 2007 WL 3001741 (QBD), 2007) EWHC 2292). Johnson, N. (1986). Contract Law in Action. Oxford: Oxford Polytechnic. Marsh, S.B. & Soulsby, J. (1987). Business Law. UK: McGraw-Hill Book Company Limited. Roscorla v. Thomas (1842) 3 QB 234. Russell, F. & Locke, C. (1992). English Law and Language. London: Cassell Publishers Ltd. Wilson v. Burnett, 2007 WL 3002000 (CA (Civ Div)), (2007) 151 S.J.L.B. 1399, (2007) EWCA Civ 1170). Read More