Business Law Midterm Review

Business Law

Midterm Review

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Learning Objectives

Categories of Law common law v. civil law civil law v. criminal law

Civil Court System

Precedent

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Learning Objectives (cont.)

Law of Contract What is a contract? How to create a valid contract Offer and Acceptance Terms of a contract Vitiating factors Discharge of contracts

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What is Law?

Law provides rules

It tells us what we can and cannot do

This is true in our personal lives (eg criminal law)

And in our business lives (eg contract law)

Therefore, it is important for a businessperson to know the rules which apply to them

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Categories of Law

Law is a very large field, and it is common to divide it into categories

common law and civil law

common law and statute law

private law and public law

civil law and criminal law

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Common Law v. Civil Law

Common Law

Case law and the courts are most important source of law

Civil Law

Consists of a legal code of general principles which is the source of law

Here, the terms describe two general types of legal system

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Civil Law and Criminal Law

In this category, “civil law” has a different meaning from the Common Law and Civil Law category

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Civil Law

In this category, civil law deals with the relationships between individual citizens

Its purpose is to settle arguments between individuals

It helps people to find remedies it doesn’t really punish people

Civil Law includes all Private Law and some Public Law

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Criminal Law

Criminal Law deals with rules created by the State which forbid certain behaviour

These are “crimes”

Criminal Law punishes people it does not provide remedies

Criminal Law is usually what people think of when they think about “The Law”

Criminal Law is part of Public Law

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Civil Court System

The civil court system provides a place for individuals to settle their arguments

You can think of it like a boxing match where the court is the boxing ring, the judge is the referee, and the individuals are the fighters

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Civil Court System (cont.)

The civil courts are arranged in a hierarchy

Court cases begin in the lower courts

If an individual loses, they can appeal to a higher court

They hope that the higher court will change the decision of the lower court in their favour

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Terminology

Some common legal words and phrases used in English civil lawcivil proceedings: a court action in a civil matter such as contractclaimant: the person who starts the civil proceedings in order to get some kind of remedy (eg money)defendant: the party whom the claimant seeks the remedy against

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Terminology (cont.)

to sue: to bring civil proceedings against someone (ie the defendant)

The claimant sues the defendant to try to get a remedy (such as the payment of money)

If the court agrees with the claimant’s argument the claimant will be successful and win his case (the court finds in his favour)

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Terminology (cont.)

If the court thinks that the defendant has a better argument than the claimant then the defendant will win (the court finds in favour of the defendant)

Usually, the party who loses a civil court case has to pay their own legal costs and the legal costs of the winner

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Precedent

The English civil courts are arranged in a hierarchy

The House of Lords is at the top of this structure

According to the rules of precedent a decision of a higher court is binding on a lower court

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Precedent (cont.)

So, a judge in the County Court must follow a decision made in the High Court, Court of Appeal or House of Lords

And a judge in the High Court must follow a decision made in the Court of Appeal or House of Lords

The Court of Appeal must follow the House of Lords

This also applies to decisions of courts at the same level

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Terminology

The legal name for precedent is stare decisis

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Finding a precedent (cont.)

However, not all parts of a decision in a previous case are part of the precedent which has to be applied

There are two parts to a decision is a case ratio decidendi obiter dicta

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Ratio Decidendi

Ratio decidendi roughly means “reason for deciding”

In other words, it is the legal reason that the judge used to decide the case

This is the part of the case which forms the precedent

Later cases should follow the same legal reasoning

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Obiter Dicta

Obiter dicta roughly means “outside words”

In other words, these are just extra comments made by the judge

Often they are theoretical examples or alternatives which the judge has thought about

Obiter dicta do not form part of the precedent which must be followed

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Application of Precedent

Although the general rule of precedent is that a previous decision of a higher court must be followed, there is some flexibility

Judges can avoid following a precedent by overruling it or distinguishing it

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Overruling

A higher court can overrule a precedent set earlier by a lower court

Many precedents are very old, and so they may no longer be relevant in modern society

However, it is a serious matter to overrule a precedent, and courts do not do it very often

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Distinguishing

Precedent applies to cases of a similar natureTherefore, if it can be shown that the situation in the present case is different in some way from the situation in the precedent, then the judge does not have to apply the precedent.This is the main way to avoid applying a precedent.

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Law of Contract

The Law of Contract is part of Civil Law

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Why have a Law of Contract?

We saw that contracts can arise in simple, everyday situations, such as buying a newspaper or taking a bus

Modern society operates by people and companies exchanging goods and services

The Law of Contract helps to give a structure to this

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Why have a Law of Contract?

The Law of Contract is part of Private Law so it is concerned with relationships between parties

It helps us to decide what is a valid contract

The Law of Contract is also part of Civil Law so it is also concerned with remedies

It helps us the other party to a contract does not keep to the agreement

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Definition of a contract

A legally binding agreement

that means there must be some kind of agreement between two parties

However, not all agreements are contracts because not all agreements are legally enforceable

legally enforceable means that a court will say that an agreement is a contract

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Creating a valid contract

In order to create a valid contract, there must be An offer An acceptance Consideration Capacity to contract Intention to create legal relations

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Definition of Offer

The person making the offer is the offeror

The person who accepts the offer is the offeree

An offer is a promise by the offeror to be bound in a contract on particular terms if there is a proper acceptance of the offer by the offeree

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Simple Example

John says to Jim, “I will sell you this book for £10”.

Jim says, “I agree”.

We have an offer and an acceptance

John is the offeror

Jim is the offeree

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Identifying Offers

Some types of statement are not offers: statement of intention supply of information invitation to treat

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Invitation to Treat

This is an invitation to others to make offers

In other words, you are asking other people to make an offer to you

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Invitation to Treat (cont.)

Some common examples of invitations to treat

goods displayed in a shop window

goods displayed on the shelf of a self-service shop

a public advertisement

a share prospectus

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Who is the offeree?

An offer can be made to

A particular person

A group of people

The whole world

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Who is the offeree? (cont.)

If the offer is made to a particular person (or group) then only that person (or group) may accept the offer

Eg: If I offer to sell my car to Jim then only Jim may accept that offer. John cannot accept.

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Who is the offeree? (cont.)

If the offer is made to the whole world then anyone can accept

We saw an example of this in Carlill v. Carbolic Smoke Ball Company

Mrs Carlill accepted the offer by her actions She bought and used the medicine

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Knowledge of the offer

You have to know about the offer before you can accept it

If you find my lost dog and return it without knowing that I had offered to pay £100 to the person who found it, then you cannot later claim the reward when a friend tells you about it

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Acceptance

Once the offeree accepts the offer the contract is made

After that, the offeror cannot withdraw the offer and the offeree cannot withdraw the acceptance

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What is Acceptance?

The acceptance must agree to the terms of the contract

The acceptance cannot try to introduce new terms

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Counter-Offers

If the offeree tries to change the terms of the offer in the acceptance, then this is not an acceptance, it is a counter-offer

A counter-offer rejects the offer

The position of the two parties is reversed

The offeree becomes the offeror and the offeror becomes the offeree

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Counter-Offers (cont.)

For example, in Hyde v Wrench, Wrench offered to sell his farm for £1,000Hyde offered £950Wrench rejected thisHyde then told Wrench he would accept Wrench’s original offerHowever, the court said there was not contract

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Counter-Offers (cont.)

The counter-offer of £950 ended the offer of £1,000 so it could no longer be accepted

That meant Hyde was now making a new offer to buy the farm for £1,000

Wrench could choose to accept or reject this

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Classical Model

The rules which we have looked at for deciding what makes a proper offer and proper acceptance are the classical legal model

They show how a contract should be created

An offeror makes an offer and if it is accepted by the offeree, a valid contract is made

If the offeree makes a counter-offer then the parties change roles with the offeree becoming the offeror and the offeror now becoming the offeree

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Classical Model (cont.)

If the parties continue negotiating then they could change roles several times as offers and counter-offers are made

Eventually, an offer will be matched with an acceptance and a contract will be created

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Terms of a Contract

Once we know how to create a valid contract, we need to think about what is in a contract

A contract is an agreement

The terms of a contract express what the parties to the contract have agreed

A term in a written contract is often called a clause

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Types of Terms

Once we know that a statement is a term in a contract, we need to identify what kind of statement it isThis is important as different kinds of statements have different remedies when a party breaches them A breach of contract occurs when one party does not follow an agreed term of the contract

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Types of Term (cont.)

There are 3 types of term:

Conditions

Warranties

Innominate terms

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Conditions

A condition is a basic and important part of the contract

If one party breaches a condition then the other party may End the contract Refuse to perform their part of the contract Continue with the contract but then sue for

damages

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Warranties

On the other hand, a warranty is not vital to the contract

If one party breaches a warranty then the other party can only continue with the contract and then sue for damages

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Innominate Terms

These are terms which may be either conditions or warranties

It depends how serious the breach of the contract is

If the breach is serious the court will say the term was a condition

If the breach was less serious then the court will say it was a warranty

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Exclusion Clauses

Exclusion clauses are terms of a contract which try to limit the liability of one of the parties if they breach the contract

These clauses can create unfair situations where one party is able to insist they are included in the contract because that party is much stronger than the other party

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Exclusion Clauses (cont.)

One area where the courts and Parliament have tried to control the effect of exclusion clauses is in contracts between business and individual consumers

This is because the business is usually in a stronger position than the consumer

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Dealing with Exclusion Clauses

When a court looks at an exclusion clause, it thinks about 3 things:

Has the exclusion clause been included in the contract?

How should the exclusion clause be interpreted?

Does the Unfair Contract Terms Act 1977 apply to the exclusion clause?

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Included in the Contract

An exclusion clause has to be part of the contract or it has no effect

There are 3 ways that an exclusion clause can become a term in a contract By signature By notice By custom

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By notice

Except in the case where someone does not read the contract, an exclusion clause is only valid where the person knew about it or was given notice of itFor example, you arrive at a hotel and book a room for a few daysWhen you get to your room, you find a sign inside which says that the hotel is not responsible if any of your things are stolen

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By notice (cont.)

However, the hotel will not be able to rely on this exclusion as the contract was made before you got to your room

The contract was made at the reception desk of the hotel before you had a chance to see the sign

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Vitiating Factors

In order to create a valid contract, there must be An offer An acceptance Consideration Capacity to contract Intention to create legal relations

There must also be no vitiating factors

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Vitiating Factors (cont.)

Vitiating factors is the technical term for the things which make a contract void or voidable

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Valid Contracts

These are agreements which are completely binding and enforceable

Parties to valid contracts gain rights and responsibilities

The courts will make sure that the parties follow these rights and responsibilities if there is any argument

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Void Contracts

In fact, these are not contracts at all

They have no legal effect

The important thing to remember is that you cannot enforce a void contract

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Voidable Contracts

This kind of contract is valid unless one of the parties has it set aside (ie declared void)

This could happen where one party is tricked into entering a contract by the other party (ie a misrepresentation)

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Vitiating Factors (cont.)

The following are vitiating factors which make a contract void or voidable

Mistake

Misrepresentation

Duress

Undue influence

Public policy

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Misrepresentation

A misrepresentation is a false statement which persuades someone to enter into a contract

The contract is then voidable

Misrepresentation has 3 parts A statement The statement is about a fact which can be checked The statement causes the party to enter into the contract

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A fact

The representation must be a statement about a specific, existing fact or event which can be checkedTherefore, the following things are not statements of fact Advertising hype Statements of law Statements of opinion Statements of intention

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Advertising Hype

Statements such as “this is the best toothpaste in the world” or “this is the finest sofa on the market” are not representations

They are simply statements made to try to interest the buyer

However, if the salesperson said something like “this car uses the same engine as a BMW” then this may be a misrepresentation if it is not true

This is closer to a statement of fact

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Types of Misrepresentation

There are 3 types of misrepresentation Fraudulent misrepresentation Negligent misrepresentation Innocent misrepresentation

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Discharge of Contracts

Discharge of a contract means that the parties are released from their obligations in the contract ie they no longer have to do what they agreed

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Discharge of Contracts (cont.)

A contract can be discharged in 4 ways

Performance

Agreement

Frustration

Breach

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Summary

Categories of Law common law v. civil law civil law v. criminal law

Civil Court System

Precedent

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Summary (cont.)

Law of Contract What is a contract? How to create a valid contract Offer and Acceptance Terms of a contract Vitiation factors Discharge of contracts