Business Law For Operation Of Business: Analyzing Contract Law In A Case Study

Issue

Discuss about the Business Law for Operation of Business.

Operation of business is not mere the carrying on of activities, but it also encompasses a number of laws, which have to be followed. Under the English Legal System, the companies have to follow the consumer laws, the contract law, the tort law, labor laws, tax laws, and various other laws depending upon the specific nature of the business.

The major law which is applicable under the given case study is the contract law. In the following parts, the given case study has been analyzed, keeping in mind the applicable laws.

Whether a valid contract was formed between Homer and the Local Press, or not? Whether the exclusion contract was valid, or not?

A contract is a legal document, under which a promise is exchanged amongst two or more parties. In a contract, one party promises to do something or refrain from doing something and this is done in exchange of consideration which is payable by the other party (Clarke and Clarke, 2016). A contract can be of two forms, a written contract or a verbal contract. In a verbal contract, all the terms on which the contract is based, is exchanged orally. And in a written contract, the terms upon which the contract is based are jotted down on a document, which is signed by the parties to the contract (Andrews, 2015).

To form a contract, the essential elements of the contract have to be present in it. The essentials of contract include an offer, an acceptance to the offer, a consideration, the intent to form legal relationship, the capacity, and the clarity (Elliot, 2011). The first essential element of any contract is the offer. With the offer only, the process of formation of a contract begins.

The willingness to contract is showcased through an offer. An offer has to be differentiated from an invitation to treat, which is more of a willingness to negotiate, and hence, is not the same as an offer (Abbott, Pendlebury and Wardman, 2007). Commonly, the newspaper advertisements are considered to be invitation to treat and the parties giving the advertisements are not under the compulsion to go through with the sale. This is because in such cases, instead of an offer, an expression is made. This was famously held in the legal matter of Partridge v Crittenden [1968] 1 WLR 1204 (Swarb, 2016).

Rule

Though, there are cases, when the advertisements are taken to be an offer instead of an invitation to treat, particularly when a unilateral offer has been made. In the legal matter of Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256, it was advertised by the defendant, that any person, who manages to catch influenza, even after sniff the smoked ball in the prescribed manner, would be paid £100. As this was a unilateral offer, the defendant was ordered to pay the plaintiff the promised amount, due to the obligation arising out of a contract (British and Irish Legal Information Institute, 2016).

The next essential is acceptance. The offer has to be accepted in the manner in which it was made and can only be accepted by the party to which it was made. If the offer is modified in acceptance, it is deemed as a counter offer and not an acceptance. This was held in the legal matter of Hyde v Wrench [1840] 49 ER 132 (Marson and Ferris, 2015).

The next element is the consideration. As long as the consideration has an economic value, it can be anything decided amongst the parties. Lord Somervell, in the legal matter of Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 stated that the consideration can be anything, which is stipulated between the contracting parties. And in this case, the three wrappers were accepted as the consideration, due to the wrappers being a precedent stipulation (E-Law Resources, 2017a).

The intention of the parties is the next element as per which, the contracting parties need to have the intent to enter into legal relationship. The next element is that the contracting parties need to have the contracting capacity to form a contract. In other words, the parties need to be of sound mind and of legal age. The final element is that the parties should have a clarity regarding the terms of the contract, to form a valid contract (Gibson and Fraser, 2014).

When one of the parties to a contract, fails to keep their end of the promise, the contract is breached (Lambiris and Griffin, 2016). In such cases, the aggrieved party can sue the breaching party for breach of contract and can claim monetary and equitable remedies. The monetary remedies are in form of compensation and equitable remedies are in form of rescission, injunction and specific performance (Ayres and Klass, 2012). The House of Lords, in Addis v Gramophone [1909] AC 488 stated that the remedies are awarded so as to put the aggrieved party in a position, as they would have been if the contract was performed as was meant to (E-Law Resources, 2017b).

Application

A term in the contract, which limits or restricts the rights or liabilities of the parties to contract, is the exclusion clause. Only when such clauses are properly incorporated in the contract, can the parties rely on such exclusion clause. The exclusion clause also has to be in conformity of the Unfair Contract Terms Act, 1977 and the Unfair Terms in Consumer Contracts Regulations, 1999 (Lawson, 2011).

The exclusion contracts are valid, only when they are properly incorporate into the contract and are not contradictory to the laws. In case an exclusion clause is incorporated later on in the contract, it is not valid (Abbott, Pendlebury and Wardman, 2007). This was established in the legal matters of Thornton v Shoe Lane Parking Ltd (1971) 2 WLR 585, as well as, Olley v Marlborough Court Ltd (1949) 1 KB 532, where the contract was deemed to be made at the time of payment and the subsequent exemption clause was not taken to be valid (Mulcahy, 2008).

The exclusion clause has to be brought to the party’s notice, against whom it is applied. In Chapelton v Barry UDC (1940) 1 KB 532, the exclusion clause provided on the back side of the ticket was not held to be binding (Roach, 2016). Also, the exclusion clause has to be reasonable and cannot be such as is referred at some other place. If such happens, the exclusion clause is held as invalid, as was seen in Thompson v London Midland & Scottish Railway (1930) 1 KB 41 (Macdonald and Atkins, 2014).

In the given case, local press had given an advertisement. The first step to establish a contract is to see if the offer was made or was it an invitation to treat. In order to establish this, it has to be seen if the advertisement was a willingness to contract or willingness to negotiate. A close inspection of the advertisement denotes that it is a unilateral offer, which can be accepted by anyone. Any person who enters the shop in the first number would get champagne. And the rest would get the TV at less than half the price.

Applying the case of Carlill v Carbolic Smoke Ball Company, the local press had indeed made an offer. And any person, who accepts this offer, has to be sold the TV at less than half the price. The TV can be sold at less than half the prices as the case of Chappell & Co Ltd v Nestle Co Ltd denotes that the consideration can be anything, as long as it has economic value. The elements of intent, clarity and capacity are also present in this. So, a valid contract was formed on acceptance of Homer between Homer and the local press.

The exclusion clause was added by the local shop which was put at the back of shop, and away from the reach of the normal customers. This clause was invalid as firstly it was not brought to the notice of the customers, as per Chapelton v Barry UDC; and secondly because it was at some other place, as per Thompson v London Midland & Scottish Railway.

The refusal of manager to sell the TV at the stated price, would act as a breach of contract. This gives Homer the right to sue the local press for a breach of contract, as per the case of Addis v Gramophone. As the exclusion clause is invalid, Homer cannot make a reference to it as the base of refusal to sell the TV. So, Homer can initiate claims against the local press and claim for specific performance or compensation, or both.

Conclusion

From the analysis of the above rules, with the facts of the case, it can be concluded that a valid contract was formed between Homer and the local press. This was because the advertisement by local press was an offer and not an invitation to treat. This offer was accepted on the consideration determined by the contracting parties. All the other elements were also present, which fulfilled the conditions for formation of a contract. By refusing to sell Homer the TV at the promised price, the local press breached the contract.

Moreover, the exclusion clause of the local press was invalid, as it was not brought to the notice of the customers, nor was at the proper place. So, the local press cannot rely on it and has to pay Homer the remedies claimed, for the breach of contract.

References 

Abbott, K., Pendlebury, N., and Wardman, K. (2007) Business Law. 8^th ed. London: Thomson.

Andrews, N. (2015) Contract Law. 2^nd ed. UK: Cambridge University Press

Ayres, I., and Klass, G. (2012) Studies in Contract Law. 8^th ed. New York: Foundation Press.

British and Irish Legal Information Institute. (2016). Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 (07 December 1892). [Online] British and Irish Legal Information Institute. Available from:  https://www.bailii.org/ew/cases/EWCA/Civ/1892/1.html [Accessed on: 04/02/17]

Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3^rd ed. South Melbourne: Oxford University Press.

E-Law Resources. (2017a) Chappel v Nestle [1960] AC 87 House of Lords. [Online] E-Law Resources. Available from: https://www.e-lawresources.co.uk/Chappel-v-Nestle.php [Accessed on: 04/02/17]

E-Law Resources. (2017b) Addis v Gramophone [1909] AC 488 House of Lords. [Online] E-Law Resources. Available from: https://e-lawresources.co.uk/cases/Addis-v-Gramophone.php [Accessed on: 04/02/17]

Elliot, C. (2011) Contract Law. 8^th ed. London: Pearson.

Gibson, A., and Fraser, D. (2014) Business Law 2014. 8^th ed. Melbourne, Pearson Education Australia.

Lambiris, M., and Griffin, L. (2016) First Principles of Business Law 2016. Sydney: CCH.

Lawson, R.G. (2011) Exclusion Clauses and Unfair Contract Terms. 10^th ed. London: Sweet & Maxwell.

Macdonald, E., and Atkins, R. (2014) Koffman & Macdonald’s Law of Contract. 8^th ed. Oxford: Oxford University Press.

Marson, J., and Ferris, K. (2015) Business Law. 4^th ed. Oxford: Oxford University Press.

Mulcahy, L. (2008) Contract Law in Perspective. 5^th ed. Oxon: Routledge.

Roach, L. (2016) Card and James’ Business Law. 4^th ed. Oxford: Oxford University Press.

Swarb. (2016) Partridge v Crittenden: QBD 1968. [Online] Swarb. Available from: https://swarb.co.uk/partridge-v-crittenden-qbd-1968/ [Accessed on: 04/02/17]