Introduction to Business Law
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INTRODUCTION TO BUSINESS LAW (200184), SPRING SEMESTER 2015
PROBLEM SOLVING ASSIGNMENT (Assessment 2)
Instructions
This document consists of three (3) pages including this page.
There are three (3) questions and all questions must be answered. This assessment task contributes 30% of your final grade. The questions are not equally weighted. This assessment task is based upon the content covered in Weeks 4 and 5 (Contract law).
Word limit: The word limit for the entire assignment is 1500 words. There is no 10% margin of error on the word limit and you may not use footnotes to get around the word limit (eg, such as by placing extra text in the footnotes – footnotes should be used for the reference only as a general rule, not for added descriptions).
Referencing style: Assignments must be referenced adopting an appropriate business referencing style.
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Do NOT attach a copy of these instructions, or of the questions, as part of your assignment, but number your answers to correspond to the numbered questions.
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SAMPLE ANSWER
INTRODUCTION TO BUSINESS LAW
Question 1
A valid contract should satisfy all legal aspects which include: offer and acceptance, the contractual capacity of the parties, consideration, and legality of the contract.[1] For an offer to be valid, it should be made by the offeror then the offeree should accept it. The parties should have the capacity to enter into contractual agreements in regards to age and sound mind. In addition, there must be consideration in terms of a promise of money for goods or services to be delivered.
A contractual agreement becomes binding when the offeree accepts the offer. An offer must be accepted by the offeree as it is, if anything in regards to the terms of the contract is changed, then it amounts to a counteroffer. An offer is made when the offeror expresses his intention to enter into a contractual agreement on particular terms, with the aim of making the terms presented binding immediately the offeree accepts the terms. There are different forms in which an offer can be communicated such as conduct, email, fax, newspaper, and letter.
Acceptance occurs when the offeree indicates that they are ready to bind themselves to the terms and conditions stipulated in the offer. For the acceptance to be effectual, it must be equivocal, implying that the contractual partners need to accept the terms of the contract as presented. In Powell v Lee (1908) 99 L.T. 284, the court was of the view that communication of acceptance is paramount to the validation of a contract. In the case where acceptance is communicated, but there is no meeting of the minds, then no contract will be deemed to exist.[2] This will be contrary to the mirror image principle which requires the offer to be accepted just as it is. Thus, when the offeree presents different conditions to those presented by the offeror, this amounts to a counteroffer, leading to the nullification of the previous offer. Accordingly, if the offeree accepts the original offer, but with additional qualifications or conditions, this also amounts to a counteroffer and it’s not binding to the other party unless they accept the additional conditions.[3]
In the case scenario, it can be implied from the facts that the parties were in a legal capacity to enter into a contractually binding agreement. Dorothy made an offer to Brian for the sale of her house ‘Gum Leaves’ at a price of $2,000,000. However, Brian’s response was that he would buy the house at $1,500,000 and in four installments over a period of two years. In this case, Brian made a counteroffer. He did not accept the offer as was made by Dorothy. Dorothy’s response to Brian’s counteroffer was in line with the mirror image principle because it was exactly as the original offer made by Brian. She accepted to sell ‘Gum Leaves’ to Brian in four installments as offered by Brian. This created a binding contractual agreement between Dorothy and Brian. The contract came into force the moment Dorothy accepted the counteroffer made by Brian.
With regards to Lionel’s scenario, Lionel also made a counteroffer because he offered to buy the house at $1, 750,000 and not $2,000,000 as originally offered by Dorothy. Dorothy, on the other hand, responded to Lionel by accepting the counteroffer but with an additional condition that the contract could only be binding if it was drawn up in a form that was acceptable to her family solicitors. Thus, there was no valid contract between Lionel and Dorothy, and Lionel was not liable for breach of the contract through his action of revoking the offer. It is possible for an offer to be revoked by the offeror before communication of acceptance.
In conclusion, there is a binding contract between Dorothy and Brian for the sale of “Gum Leaves” at $1,500,000 and in four installments at a period of two years, whereby the failure of Dorothy to fulfill her part of the contract leads to breach of the contract.
Question 2
Under contract law, a contract comes into existence the moment the offeree accepts the terms and conditions of the offer.[4] In the case scenario, an agreement was made between Emily and Rachel for the sale of Fang to Emily for $3,000 in two installments of $1,500 each. A contract is valid if there is consideration between the parties. Consideration refers to the promise to fulfill a particular obligation upon payment of a certain specified sum of money.[5] Rachael gave out her dog to Emily basing on Emily’s promise to pay $3,000. Thus, the two parties entered into a binding contractual relationship, the breach of which leads to legal consequences.
With regards to the issue of whether or not the dog was even tempered, this was not part of the contract in the express sense. Although there are implied terms with regards to merchantability of contractual goods, the issue of a dog’s tempers is tricky because it is not possible to objectively determine Rachael’s liability on the ground that she promised that the dog was even tempered. The objective test for determining the extent to which a contractual term is binding to the party that makes it is based on how a reasonable bystander could interpret the issue of a dog’s tempers. It is likely that when Rachael sold the dog to Emily, it was even tempered. This is because dogs usually change their tempers depending on different circumstances and environments. In addition, Emily had not stipulated such a condition as to temperament during the time at which the parties were entering into the contract. Thus, Emily is still required to fulfill her part of the bargain by paying off the remaining installment of $1,500.
Question 3
This question addresses the issue of avoidance of liability using disclaimers.[6] In general, contract law supports the aspect of freedom in contractual dealings and aims at allowing parties to make their own choices in regards to allocation of the risk associated with the particular contract in which they are entering. Thus, courts basically try to ensure the enforcement of the terms of the contract decided upon by the parties. Section 2-719 of the UCC provides for the freedom of parties to ensure that remedies and consequential damages are limited as much as possible. However, a contract may be invalidated if a clause is found to be unconscionable in the sense that it has elements of one-sidedness, oppression, and harsh agreement.
An exclusion clause can be included in a contract for purposes of putting a limitation on the liability of a party of breach of contract or negligent conduct. However, reliance on such a contract will only be successful if the clause was incorporated into the contract and it can be interpreted to mean that the clause covers the loss in question.
With regards to incorporation, an exclusion clause can be included in a contract through the ‘course of dealing,’ signature or notice. Where a notice is given in regards to the exclusion of liability of a party to the contract, the notice should be made known to the other party. The notice should be displayed at a conspicuous place where the other party can see it and become aware of it before taking up the risk. In addition, if the notice is on a piece of paper, and it is written in small letters to the extent that the other party cannot see, such an exclusion clause is not binding. This is because there is no meeting of the minds between the parties involved in the contract. At least for a contract to be binding to the parties involved, there must be mutual agreement with regards to what these parties are entering into.
In addition, a party cannot avoid liability for gross negligence on the ground that the claimant foresaw the consequences of their actions. The court interprets disclaimers and exclusion clauses in a manner that ensures that they are not one-sided and oppressive to one party. The court’s interpretation aims at determining whether the disclaimer indeed covers the breach that has taken place. The main approach followed by the court is that exclusion of liability only occurs where clear words have been used. This implies that in case of any ambiguities in the disclaimer, the court applies the contra preferentem rule whereby the disclaimer is construed against the party that drafted it.[7] In addition, the court may still hold the party relying on the disclaimer liable where the disclaimer indicates inconsistencies or repugnancy to the major purpose of the contract. Furthermore, under common law, it is not possible for a party to exclude or restrict a fundamental breach in whatever situations because this results into unfairness.[8]
In the case scenario, it is evident the ferry company included a disclaimer on the ticket given to Phillip. Phillip had used the ferry on a previous occasion, but in both instances, he did not see the disclaimer placed on the ticket. Due to the fact that the court will interpret the disclaimer in line with the contra preferentem rule, it will find that the ticket was first written on the reverse side, meaning that it could not be easy for the party purchasing a ticket to see it. In addition, the party purchasing the ticket and reading the disclaimer could imagine that the words “All vehicles and passengers use this ferry at their own risk” were applicable to factors beyond the control of the ferry operators such as force majeure and hardship.[9] However, Phillip lost his car as a result of the negligence of the captain of the ferry. The ferry company cannot claim that the disclaimer covered the breach in question. Thus, the ferry company is still liable for Phillip’s loss.
References
Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright. Anson’s law of contract. Oxford University Press, 2010.
Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart Fifoot. Cheshire, Fifoot and Furmston’s law of contract. Oxford university press, 2012.
Koffman, Laurence, and Elizabeth Macdonald. The law of contract. Oxford University Press, 2010.
Lopez v. Charles Schwab & Co., Inc., 118 Cal. App. 4th 1224 (2004).
McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press, 2014.
Perillo, Joseph M., and John D. Calamari. Calamari and Perillo on contracts. West Academic, 2009.Treitel, Guenter Heinz. The law of contract. Sweet & Maxwell, 2003.
Powell v Lee (1908) 99 L.T. 284.
Schot, Natasha. “Negligent liability in sport.” (2005).
Smith, Stephen A., and Patrick S. Atiyah. Atiyah’s Introduction to the Law of Contract. Oxford University Press, 2006.
Uniform Commercial Code (UCC).
[1] Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright. Anson’s law of contract. Oxford University Press, 2010.
[2] Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart Fifoot. Cheshire, Fifoot and Furmston’s law of contract. Oxford university press, 2012.
[3] Uniform Commercial Code (UCC) Sec. 2-207
[4] Lopez v. Charles Schwab & Co., Inc., 118 Cal. App. 4th 1224 (2004).
[5]Smith, Stephen A., and Patrick S. Atiyah. Atiyah’s Introduction to the Law of Contract. Oxford University Press, 2006.
[6] Perillo, Joseph M., and John D. Calamari. Calamari and Perillo on contracts. West Academic, 2009.Treitel, Guenter Heinz. The law of contract. Sweet & Maxwell, 2003.
[7] Koffman, Laurence, and Elizabeth Macdonald. The law of contract. Oxford University Press, 2010.
[8] McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press, 2014.
[9] Schot, Natasha. “Negligent liability in sport.” (2005).
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