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Business Law
Midterm Review
2
Learning Objectives
Categories of Law common law v. civil law civil law v. criminal law
Civil Court System
Precedent
3
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
4
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
5
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
6
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
7
Civil Law and Criminal Law
In this category, “civil law” has a different meaning from the Common Law and Civil Law category
8
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
9
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
10
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
12
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
13
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)
14
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
15
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
16
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
17
Terminology
The legal name for precedent is stare decisis
18
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
19
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
20
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
21
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
22
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
23
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.
24
Law of Contract
The Law of Contract is part of Civil Law
25
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
26
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
27
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
28
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
29
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
30
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
31
Identifying Offers
Some types of statement are not offers: statement of intention supply of information invitation to treat
32
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
33
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
34
Who is the offeree?
An offer can be made to
A particular person
A group of people
The whole world
35
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.
36
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
37
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
38
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
39
What is Acceptance?
The acceptance must agree to the terms of the contract
The acceptance cannot try to introduce new terms
40
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
41
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
42
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
43
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
44
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
45
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
46
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
47
Types of Term (cont.)
There are 3 types of term:
Conditions
Warranties
Innominate terms
48
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
49
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
50
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
51
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
52
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
53
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?
54
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
55
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
56
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
57
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
58
Vitiating Factors (cont.)
Vitiating factors is the technical term for the things which make a contract void or voidable
59
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
60
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
61
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)
62
Vitiating Factors (cont.)
The following are vitiating factors which make a contract void or voidable
Mistake
Misrepresentation
Duress
Undue influence
Public policy
63
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
64
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
65
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
66
Types of Misrepresentation
There are 3 types of misrepresentation Fraudulent misrepresentation Negligent misrepresentation Innocent misrepresentation
67
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
68
Discharge of Contracts (cont.)
A contract can be discharged in 4 ways
Performance
Agreement
Frustration
Breach
69
Summary
Categories of Law common law v. civil law civil law v. criminal law
Civil Court System
Precedent
70
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