Business Law

A Straightforward Guide

• Publisher: Straightforward Publishing Digital
• Year: 2014
• ISBN:
  9781847164728

This latest publication in the Straightforward Guides Series - A Guide to Business Law - is a comprehensive introduction to the law as it affects the business environment. The areas that affect business specifically are the English Legal system generally, contract law, employment law and company law. Also important is the law of intellectual property.

Ch. 1

BUSINESS LAW-THE LAW OF CONTRACT

Underpinning all contracts are four main principles:

1) A contract is an agreement between the parties to that contract-one person makes an offer and the other accepts that offer

2) Both parties have an intention to be legally bound by the agreement-this is usually known as an intention to create legal relations

3) Parties to the agreement need to be absolutely clear as to the terms of the agreement – this is the main area of contention with contracts, as we will see laterc4) There must be consideration provided by each of the parties to the contract – this means that one person promises to give or deliver and the other promises to pay. The offer and the payment – either monetary or in kind - is the consideration. When making a contract, or entering into a contract all parties to the contract must have the legal capacity to enter into a contract. Very importantly, a contract, in most cases, does not have to be in writing – a piece of paper is not necessary, the agreement and evidence of that agreement forms the basis of contract. There are a few important exceptions, including contracts relating to interests in land (Law of property (Miscellaneous Provisions) Act 1989, s 2(1)) and consumer credit (Consumer Credit Act 1974).

Other factors affecting formation include:

• Form-the way the contract is created (e.g. the sale of land can only be made in the form of a deed) Form is an issue with specialty contracts but not with simple contracts

• Privity of contract and the rights of third parties-generally a contract is only enforceable by or against a party to it, subject to exceptions and certain third party rights are now protected in the Contracts (Rights of Third Parties) Act 1999.

The nature of contracts – unilateral and bilateral contracts

The majority of contracts entered into are known as Bilateral contracts. This quite simply means that each party to a contract agrees to take on an obligation. This obligation is underpinned by a promise to give something to the other party. A Unilateral contract will arise where one party to the contract will make a promise to do something (usually to pay a sum of money) if the other party carries out a certain task. Examples of this are where you might undertake to pay someone a sum of money if they shave off their hair for charity or give up smoking. Estate agents enter into unilateral contracts whereby a percentage of sales go to the agent if they sell the property. However, the agent is not legally bound to sell the property, just to try to sell it.

The notion of offer and acceptance

As we have seen, for a contract to have legal status, usually one of the parties to the contract must have made an offer and the other party must have accepted the offer. Once the contract is accepted the agreement will be legally binding. The person making the offer is called the offeror and the person to whom the offer is made is known as the offeree. An offer may be express or implied. Express means that there is an express intention to offer goods and for X to pay an amount for the goods. Implied may mean, for example, when purchasing something from a store. The act of taking goods to a checkout means that there is an implied offer to buy those goods.

When dealing with contracts, or the formation of a contract most offers are made to specific parties. However, offers can also be made to a group of people or to the public at large. One such example is where a reward is offered for information following a crime.

One famous case dealing with offers to the public at large is Carlill v Carbolic Smokeball (1893) the defendants in this case were the manufacturers of ‘smokeballs’ popular at the time, which they claimed could prevent flu. They published adverts to this effect stating that anyone using their smoke balls and not being cured of flu would receive £100.

One person buying their smokeballs was a Mrs Carlill. It did not work and she claimed the £100. The manufacturers argument was to claim that their advert did not constitute a contract, since it was impossible to contract with the whole wide world. They claimed that they were not legally bound to pay the money. The court, needless to say, rejected this argument, which held that the advert did contract with the world. Mrs Carlill accepted the offer and duly claimed the £100. A contract such as the one above is usually a unilateral contract.

The invitation to treat

Certain kinds of transactions between parties might involve a preliminary stage where one party to the contract invites the other party to make an offer. This preliminary stage is known as ‘invitation to treat’.

One such case that demonstrates this is that of Gibson v Manchester City Council (1979). In this case, a council tenant of Manchester City Council expressed an interest in buying their house. The application was duly completed and sent to the council. A letter was received from the council stating that it may be prepared to sell the house to the tenant for £2180. The tenant, Mr Gibson, queried the purchase price pointing out that the path to the house was in bad condition. The council refused to alter the price, stating that the valuation reflected the condition of the property and the current property market. Mr Gibson then wrote asking the council to continue with the sale. Following a change in the control of the council, and a new political approach, it was decided to stop the sale of houses to tenants. Mr Gibson was informed that his application had been declined, notwithstanding the initial offer. Legal proceedings were brought against the council claiming that the letter received by Mr Gibson, with the offer of sale at a price, constituted a contract, and was an offer which he duly accepted. The House of Lords, however, ruled that the council had not made an offer, the letter stating the purchase price was merely one step in the negotiations for a contract and amounted only to an invitation to treat. Its purpose in the first instance was quite simply to invite the making of a formal application, amounting to an offer, from the tenant.

Offers of sale in shops

Goods in shop windows marked with a price are generally regarded as invitations to treat, rather than offers to actually sell the goods at the price displayed. One such case highlighting this is Fisher v Bell (1961) where a shopkeeper was prosecuted under the Offensive Weapons Act 1959 for ‘offering for sale’ an offensive weapon. The shopkeeper was displaying a flick knife with a price attached in the window. It was held that the display of the flick knife was an invitation to treat, rather than an offer, thus the shopkeeper was found not guilty of the offence.

Where goods are sold on a self-service basis, the customer will make an offer to purchase on presenting the goods at the till and the shopkeeper may reject or accept that offer. One case which highlights this is Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Limited 1953. Boots were charged with an offence concerning the sale of items, medicines that could only be sold under the supervision of a qualified pharmacist. Two customers in a self-service shop selected the items, which were marked with a price from a shelf in the shop. The shelves were not supervised by a pharmacist but the pharmacist was instructed to supervise at the cash desk. The issue was whether the sale had taken place at the shelf or the cash desk. The Court of Appeal decided that the shelf display was like an advertisement and was therefore an invitation to treat. The offer was made by the customer when the items were placed in a basket and was only accepted when the goods were taken to the cash desk. A pharmacist was supervising at that point so no offence was committed.

Following on from this principle, shops do not have to sell goods at the marked price and a customer cannot insist on buying a particular good on display. Displaying the goods is not an offer so a customer cannot accept it making a binding contract. (In reality, if shops do display goods at a price they generally sell it at that price although, as we have seen they do not have to).

Contracts and advertisements

A distinction is generally made between advertisements for unilateral contracts and advertisements for bilateral contracts. Advertisements for unilateral contracts will include those such as described in the case of Carlill and Carbolic Smokeball Co or those offering a reward for information or for lost property. They are usually treated as offers on the basis that no further negotiations are needed between the parties to the offer and the person making the offer will usually be bound by it. One case is that of Bowerman v Association of British Travel Agents Ltd (1996) in which a school had booked a skiing holiday with a travel agent, which was a member of ABTA.

In this case the tour operator became insolvent and all holidays were cancelled. The school was refunded the money paid for the holiday but not the cost of the travel insurance taken out, which was significant. The case was taken to court and ABTA lost because the notice constituted an offer which the school accepted by contracting with the ABTA member.

Bilateral contracts

Bilateral contracts are the types that advertise specified goods at a certain price such as those found in shop windows and in magazines. They are usually considered invitations to treat on the grounds that they may lead to further bargaining. One such case that highlights this is Partridge v Crittendon (1968). An advertisement in a magazine stated ‘Bramblefinch cocks and hens 25shillings each’. As the Bramblefinch was a protected species, the person who placed the advert was charged with unlawfully offering for sale a wild bird which was against the Protection of Birds Act 1954, but the conviction was quashed on the grounds that the advertisement was not an offer but an invitation to treat.

Communication of offers

A valid offer must be communicated to the offeree. It would be unfair for a person to be bound by an offer of which he had no knowledge. This is reflected in Taylor v Laird 1856. The offeree must have clear knowledge of the existence of an offer for it to be enforceable. This is reflected in Inland Revenue Commissioners v Fry 2001.

An offer can be made to one individual or to the whole world, when the offer can be accepted by any party who had genuine notice of it. In addition, the terms of the contract must be certain. The parties must know in advance what they are contracting over, so any vague words may invalidate the agreement. this is reflected in Guthing v Lynn 1831.

The length of time an offer should last

An offer may cease to exist in any of the following circumstances:

-Where an offeror states that an offer will be open for a specified time

-Where the offeror has not specified how long the offer will remain open, the offer will lapse after a reasonable length of time has passed. How much time can be deemed reasonable will depend on whether the offer was communicated quickly and also on the subject matter.

Some offers are made subject to certain specified conditions, and if these conditions are not in place, the offer may lapse. An offer may lapse if and when the offeree rejects it. For example, if A offers to sell B a car on Tuesday, and B says no, B cannot come back on Wednesday and insist on accepting the offer

A counter offer can terminate the original offer. One case that highlights this is Hyde v Wrench (1840) where the defendant offered to sell his farm for £1000 and the plaintiff responded by offering to buy it at £950-this is termed making a counter offer. The farm owner refused to sell at that price and when the plaintiff later tried to buy the farm at £1000, the original asking price, it was held that this offer was no longer available. The counter offer had terminated the original offer

The death of the offeror can affect the offer. If the offeree knows of the death of the offeror then the offer is terminated. If they did not, the offer still stands, although this is one area of law that is still unclear. It very much depends on the circumstances at the time. An offer may be revoked, withdrawn, at any time until it has been accepted. This is the basic rule, although there are a number of other principles. It is not enough for an offeror simply to change his or her mind about an offer. The offeror must notify the offeree that the offer has been revoked. Revocation does not specifically have to be communicated by the offeror, it can be by another reliable party.

Acceptance of an offer

Acceptance of an offer must be unconditional, accepting the precise terms of the offer. Where the process of negotiation is long and difficult, it might be difficult to pinpoint exactly when an offer has been made and accepted. In such cases a court will examine the precise course of negotiations to ascertain whether the parties have reached agreement, if at all and when. This process can be complicated when the so-called ‘battle of forms’ occurs. Rather than negotiating terms each time a contract is made many companies try to use standard conditions, which will be printed on headed stationary, such as order forms and delivery notes. The ‘battle of forms’ occurs when one party sends a form stating that the contract is on their terms, and the other party responds by sending back the forms and stating that the contract is on their terms. The general rule in these cases is that the ‘last shot’ wins the battle. Each new form issued is treated as a counter offer, so that when one party performs its obligation under the contract the action will be seen as acceptance by the other side. One simple case that illustrates this is British Road Services v Crutchley (Arthur V) Ltd (1968). The plaintiffs delivered some whisky to the defendants for storage. The BRS driver handed the defendants a delivery note, which listed the company’s terms of carriage. The ...