. Introduction

A contract is defined as a legally binding agreement established by joint consent of the parties involved. Parties in an agreement may be familiar to each other, for example an accountant and a client, or they may be strangers, for example a company dealing with software and a user who downloads the software for use with his/her computer. In both cases, there is an unblemished relationship between the parties involved and this kind of relationship is governed by the contract. In any contractual arrangement, obligation is controlled by the term of contract. In any contract the parties have to accept the resultant obligations. There is no complete freedom in contracts because some contractual terms may be limited by statute. A good example of such a statute is the Unfair Contract Term Act of 1977. For any contract to be legally obliging parties to the contract should have the intention to establish legal relations and the basis for their contractual obligation is the parties mutual consent (David & Anne 2002, p.23).

Causation and remoteness of damage affects the extent of the liability of the defendant for the series of occasions caused by the breach of contract. A leading case in this is Hardley v Baxendale[1854] where the defendant was in a contract to transport an inoperative mill shaft to the repairer from the claimants’ mill. The defendant was late and the mill remained idle for long as a result. The plaintiff sought compensation for profit loss due to the delay. Here, given that the shaft was vital to the mill, no test for remoteness was successful since it was sensible for to believe that the mill would have a spare shaft(Cornel University 2009, p.124).

Business contracts are can be defined within the context of Business law or the Law of contracts. The latter is wider but all its constituents are subject to fundamental elements of contracts. The main difference between the Law of Contract and the Law of Tort is founded on liabilities and obligations. In contracts parties obligation is put in place by the parties themselves while in tort obligation is enforced by law (Robert 2009, p.88).

2.Task 1: Identify the essential legal elements for the creation of a valid contract in this case and explain their importance

2.1 Acceptance and offers

A contract is created when one party accepts an offer by another party. An offer has to be differentiated from mere willingness to negotiate or deal. For example, Y promises to sell Z calendars featuring American painting. Before an agreement is established on quality, size, price or style, B decides to stop. At this point a legally binding contract between the two parties does not exist because of the absence of definite offer for B to accept until the important terms of the offer have been determined (Ian 2001, p.22).

An offer is not necessarily meant for a one person. It may be meant for a one person, a class or even the whole world. An offer is exact promise to be compelled if the specifications of the offer are agreed on which means that there have to be acceptance of exactly what was offered in the advertisement. As an example, a dealer of used cars offers to sell Y a car for $980 without a certificate for road worthiness.  If Y agrees to buy the car, but demands the certificate, this creates a counter offer. The dealer has then to agree on or decline the counter offers.  A party can withdraw and offer before it is accepted. For the removal of the offer to be of use, the proposer must inform interested parties of the withdrawal.

Acceptance happens when the other party has given in to the offer by action or a statement.  Acceptance must not be equivocal and communicated directly to the offer. This is because the law can deem a party to have accepted the given offer as they haven’t explicitly declined it (Richard & Barry 2007, p.500).

2.2 Intention to establish a legal relation.

A contract does not come to existence only because there is an agreement. The parties to a contractual agreement must have the intention of entering into a legally binding agreement. This will seldom be expressly stated but will normally have the capability to be inferred from the conditions in which the contractual agreement was created. For example, offering someone a ride in your van is not normally intended   establish a relationship which is legally binding. However, if you have agreed with your friend to share the of travelling to work on a daily, and agree that your friend will have to pay you $30 each Friday for fueling the car, then the law will perhaps identify that you have entered into contractual agreement(Lucy 2011, p.501).

Agreements which have commercial elements will be seen as having a refutable intention to create an agreement which is legally binding between the parties. Nonetheless, a presumption of the law is that social or domestic agreements are not intended to establish legally binding relations. For example, an arrangement amongst siblings is presumed not to be legally binding agreements. Any person who would like to enforce a social or domestic agreement will be required to prove that the parties had the intention to establish a legally binding agreement (Lucy 2011, p.588).

2.3. Consideration

Consideration in contracts is the price rewarded because of the promise by the other party(s). The price has to be something valuable, although it does not have to be money. Consideration can be some can me some interest, right, or benefits or some detriment, forbearance, responsibility suffered, given or executed by the other party. Provided consideration exists, no court will question its sufficiency, provided it is something valuable. For example, a promise to by one party to pay a peppercorn for house lease would suffice a consideration. But consideration must not be illegal or impossible to give.

There are a few exceptions to the rule for consideration. For example, deeds or other documents under seal need not carry a consideration for there to be a binding contractual agreement (Peter 2004, p.41).

2.4. Legal capacity

Not all people can enter into a valid contractual agreement. Contracts of the group of people outlined below encompass difficult consent. The contracts are separated from others and grouped as follows:

• People with mental impairments.
• Minors (young people).
• Corporation(People acting in place of a company);

 

In general, people are free to enter into contractual agreements even though they are mentally impaired, or temporarily incapacitated. However, they are sometimes susceptible to entering into contracts which they do not entirely understand. Question of the capacity to enter into contracts mostly surface after a contract is made. Disabled people and their lawyers will identify some protection in the rule which states that a contract is invalid and not enforceable unless there was authentic consent to its creation.

Capacity to give a genuine consent encompasses a general understanding of the contract nature and not necessarily its inner details.  A mentally impaired person may be able to understand some contracts (e.g. buying a cake), but not others which are more complicated (e.g. purchasing a lorry on credit).

People with short term or long term disabilities are assisted by administrators appointed by guardianship (VCAT). Disabled people represented by administrators are usually not free to enter into any contract, unless approved in writing their administrators or a directive from the Guardianship list of VCAT. People with psychiatric or intellectual related disabilities are liable to pay only a sensible pay for necessaries sold (S7 Goods Act 1958(1958)) (Tulsian 2000, p.123)

3. Task 2

3.1 Bilateral and Unilateral Contracts

A bilateral contract is a contract by exchange of promises in which the promise by one party is reflected as a consideration underpinning the promise of the second party. A bilateral contract can easily be differentiated from unilateral contracts, which is a promise given by one party in return for the execution of specific acts by other parties to the contract. The person or party whose is performance is sought in a unilateral contract has no obligation of action, though if he/she do act, the party that gave the promise has to conform to the conditions of the agreement.

In bilateral agreements both parties have to conform to the specifications of the contract created. Both parties in this type of contract give promises. With respect to issued promises, the party who gives a promise is a promisor and the party to which the promise is made is the promisee. The legal loss sufferer by the promise contains a different promise him or her to perform or desist from executing something he/she wasn’t   legally obligated before to perform or desist from. This legal loss consists of consideration, motive, the cause, or benefits that make one to enter into the contractual agreement.

Consideration is a vital constituent of a contact.  Conventionally, courts have differentiated between bilateral and unilateral contracts by verifying whether a single or all the parties offered consideration. Bilateral contracts were considered to legally oblige both parties the moment the parties made promises to each other as each promise was considered a sufficient consideration. Unilateral contracts are considered to oblige only the promisor and not the promise unless the promise accepts by executing the terms of contract specified in the particular offer by the promisor. Unless the promisee performs, he hasn’t given any consideration according to the law.

As an example, if a friend promised to drive you to work place on Tuesdays and Thursdays in return for your promise to give something on Fridays a bilateral agreement will be established obliging both of you the moment you offered consideration by accepting the specifications of the contractual agreement. But if your friend promised to pay you $20 each time you took him to work, then a unilateral contractual agreement would be created obliging the promisor only until a consideration is provided by driving him/her to work on a specific day.

Today, courts of law have re-defined the difference between bilateral and unilateral contracts. The courts have established that an offer can be accepted either by actual performance or a promise to perform.  A large number of modern courts have come to a conclusion that the conventional/traditional differentiation between unilateral and bilateral contractual agreements fails to meaningfully develop legal analysis in the increasing number of cases in which performance is offered over lengthy time duration (MarshSoulsboy 2002, p.88).

3.2 Express and Implied contracts

This is a kind of promise exchange where the terms of agreement are declared either in writing or orally or a combination of the two, at the time of its making. Whether written or oral, the contract has to have a mutual interest to be legally bound which should be expressed in a way in which that it will easily be understood, and involves a definite offer, consideration and unconditional acceptance.

An express contract is distinguished from an implied contact by the method of assent manifestation and the kind of proof required. The difference between express contract and implied contract contains no variation in legal effect. Both implied and express contacts call for mutual assent, although an express contract has to be proved through a tangible agreement, whereas implied contracts are proved by conditions and the conducts the parties involved.

An implied contract is a contract created by the conduct/action of the involved parties. However it is not spoken or written. In this type of contract, there is the absence of verbal agreements or written record. A good example of implied contract is the automatically provided warranty by law. The implied warrant provides that when an item is bought, there is the guarantee that it will work for its intended purpose.  For example a refrigerator is expected to keep items kept in it cool.

In a clearer definition, implied contracts are agreement s which not reduced to any kind of writing and are crated on the basis of the behavior/conduct of the parties involved. Under implied contracts, it is assumed that the involved parties, actions are under a tangible agreement. For example, in medical realm, an implied contract comes into place when a veterinarian gives a cow medication. It is expected that the veterinary doctor will do his/her best and the owner of the cow will pay the medication fee (Peter 2004, p.101).

3.3 Void and voidable contracts.

A void contract is not enforceable by law. The difference between a void and a voidable contact is that a voidable contract may or may not be nullified by law. Nevertheless, when a contract is established, there isn’t any involuntary mechanism in every circumstance that can be used to detect enforceability or validity of the. Realistically, a contract may be pronounced void by courts of law.

For example, any agreement to execute an act which is illegal is a void agreement. A contract between drug traffickers is therefore void because of the illegal terms of the contract. In this case none of the party may head to a court of law to ask for the enforcement of this kind of a contractual agreement. A void contractual arrangement is said to be void ab initio. That is, a void agreement is void from the beginning,

Voidable contracts  are not necessarily  void contracts. Normally, one of the parties to a voidable contract is legally bound. The party which is not bound may reject the contract making the contract void. An agreement that can be enforced by law at the option of one party to the law and not at the other parties involved is a voidable contract. A contract is declared voidable when the consent of at least one party to the contract is gotten by undue influence, coercion, fraud, etc (Richard & Barry 2007, p.912).

3.4. Distance selling contracts

Contracts dealing with distance sales are not createdin person and one does not have the opportunity to examine the gods before purchasing them. A good example of this would be an agreement made on a phone or over the internet. When one enters into a distance sale contract, the seller has to disclose some information to you. This information may include but not limited to:

• A thorough description of the services or goods to be sold under the agreement.
• Delivery plans by the seller.
• Cancellation, return, refund or exchange policies of the seller if applicable.

A party may not be bound to a distance sale contract if the necessary copy of the agreement is not provided to you within 15 days after the contractual agreement is put in place. If this happens, one has up to 30 days from the date the contract has been created to cancel it. Some other provisions of legislation dealing with cancelation are also available and therefore ii is important to review all the available legislation that deal with distance sales contractual agreements to find out the one that best fits your situation (David 2002, p.125).

4. Task3: Case Study- East Midlands Airways Airbus.

In this case study East Midlands Airways (EMA) offers to sell a second hand airbus to any interested buyer. Phil, instead of accepting the offer after seeing the advertisement asks the Managing director, Joseph of EMA to give him 5 days so that he can come and inspect the airbus. This amounts to a counter offer in which the director of EMA can either accept or decline. The managing director accepts the counter offer after Phil promises to provide a consideration of £100 000 on condition that the airbus will not be sold to any other interested buyer in the next five days.

The essential Legal elements paramount for the establishment of the contract in the case study are:

• Offer and acceptance: in the case study, the counter offer by Phil is accepted by Joseph, the Managing Director of EMA.
• Consideration: this is the amount that Phil has promised to pay incase his counter offer is accepted by Joseph, i.e. £100 000.
• Legal capacity: both parties in the contract in this case study have legal capacity to make a valid contract.
• Intention to make a legally binding agreement: in the contract between Phil and the director of EMA, the intention to establish a legally binding agreement exists.

Case Laws applicable to this kind of contract are:

• Hyde v Wrench[1840]
• Harvey v Facey [1893]
• Carlill v Carbolic Smoke Ball co [1893]( Kluwer 2004,p.234 ).

5. Task 4: Case study-Supply of Mobile Phone

5.1. Task 4a

Under both circumstances (i) and (ii), the court may classify the contractual terms under implied contracts. An implied contract is a contract created by the conduct/action of the involved parties. However it is not spoken or written. In this type of contract, there is the absence of verbal agreements or written record. A good example of implied contract is the automatically provided warranty by law. The implied warrant provides that when an item is bought, there is the guarantee that it will work for its intended purpose.  For example a refrigerator is expected to keep items kept in it cool.

Case laws relating to implied contract supporting my argument are:

• Wood v Lucy, Lady Duff-Gordon[1917]
• Bailey v West[1969](Robert 2009, p.405).

5.2. Task 4b

If condition (iii) is used as a term in the contract, the contract may become voidable. Voidable contracts are not necessarily void contracts. Normally, one of the parties to a voidable contract is legally bound. The party which is not bound may reject the contract making the contract void. An agreement that can be enforced by law at the option of one party to the law and not at the other parties involved is a voidable contract. A contract is declared voidable when the consent of at least one party to the contract is gotten by undue influence, coercion, fraud, etc.

Having this in mind, I would advise Unique Mobile Solutions that the exclusion clause was incorporated into the terms of contract through undue influence and therefore they should file a case in a Court of Law for the contract to be declared voidable.

Case laws supporting my argument include:

• Bowling v Sperry[1962]
• Cunday v Lindsay, [1877-78](Richard & Barry 2007, p.109)

 

References

Cornel University, 2009. ‘Essential elements of a legally binding contract’ viewed 28 October 2014, www.law.cornell.edu/wex/contract

David, K, Anne, E & Ruth, H., 2002. Business Law. Australia: Cavedish:

Furmston, M., 2001. Principles of Commercial Law. Australia: Cavendish.

Ian, T., 2001, Principles of Commercial Law. Australia: Cavendish Publishing

Kluwer,, 2004. ‘Business Law Review’ vol.8, no.2, viewed 28 October 2014, http:/www.kluwerlawonline.com/businesslaw

Lucy, J., 2011. Introduction to Business Law. USA: Oxford University Press.

Marsh, S., & Soulsby, J., 2002. Business Law. London: Nelson Thornes.

Peter, G., 2004, Business Law. USA: Federation Press

Peter, H., 2000. General Principles of Commercial Law. Australia: Juta.

Robert, W., 2009. Business Law. London: Barron’s Education Series.

Richard, M., & Barry, R., 2007. Business Law and the Regulations of Business. London: Cengage Learning.

Tulsian, P., 2000. Business Law. London: Tata McGraw-Hill Education.