The Law Of Contract Law Essay

In a limited liability company, the most common form of corporate existence in the UK, ownership rests with the shareholders and control rests with the directors, in broad terms. Most day-to-day management is done by directors, including most corporate decision-making. Shareholders, however, are often required to ratify or authorise actions by shareholder resolution passed in general meetings. Yet this is subject to particular voting levels being met such as 50% majority required at a minimum to pass the simplest ordinary resolution Bushell v Faith [1970] AC 1099).

Certain decisions require a special resolution which would need a no less than 75% of the voting members approval to be passed (s. 378(2) Companies Act 1985 (CA)). In this scenario, Frank, Emily and Tim (FET) are the directors of the company managing the day-to-day organisation of the company for the owners of the company, which includes William (W) holding a 10% share. FET have various obligations they owe to the company and cannot freely make decisions which give them a benefit or are not in the interests of the company as a whole.

A director can occasionally be described as taking on the role of a trustee with respect to a company, with the main difference that the director rarely holds any property on trust for the company. The duties owed by and responsibilities imposed on directors are termed fiduciary duties and fall into three main areas. Firstly, a director must not put himself in a position where the interests of the company conflict with the director’s personal interests or the interests of a third party.

This duty is activated, not when the potential conflict arises but rather when it arises and the director does not act in accordance with the benefits of the company in mind. Secondly, a director must not make profit out of his position as director unless the company has given the director permission to do so British Racing Drivers’ Club Ltd v Hextall Erskine [1996] 3 All ER 667. Thirdly and most encompassing, the director must act in the interests of the company.

The occasions at which these examples occur are often difficult to qualify, however, as whether a director act in the interests of the company or not may not be so clear cut and could rather be a matter of perception. FET increasing their remuneration to eradicate any dividends being issued is not easily classified as not acting in the best interests of the company, however, as the shareholders are the company, this may be an issue. The second major duty owed by directors is the duty to place the company’s interests as paramount to any other interests.

This is similar to the third fiduciary duty and is again extremely broad. In Re Smith & Fawcett Ltd, Lord Greene stated that directors must act ‘ bona fide in what they consider – not what the court may consider – is in the interests of the company, and not for any collateral purpose’. This however, does not invalidate a claim against a director when the defendant director argues that the actions taken were with the motive of acting in the best interests of the company, as the court in these instances looks to the purpose behind the action and whether this purpose was a proper one.

The directors must act in the interests of the company and not in the interest of its shareholders Re a Company No 00370 of 1987. Yet, as pointed out before, acting in the interests of the company often holds the side-effect of acting in the interests of the shareholders, generating the greatest long-term profits and potential at long-term survival and growth. This is not always what a shareholder would desire, especially if investing for a short-term return. FET would therefore arguably owe a duty to the shareholders.

However, more concretely, and what W could utilise to greater effect is that a special resolution would need to be passed to ratify the decision made by FET regarding the remuneration, especially if one of the shareholders were to exercise any number of minority shareholder remedies available with respect to FET Edwards v Halliwell [1950] 2 All ER 1064, Foss v. Harbottle (1843) 2 Hare 461. FET together hold 70% of the voting share capital and so could not ratify any special resolutions exclusively.

Naturally of course, they could attempt to get on board either Bruce or Lydia thereby reducing W’s chances at changing this situation, but if W were to pursue an action, FET would not fair well to maintain their increased remuneration status. Gee & Co. is a partnership regulated by the Partnership Act 1890 (PA). The PA regulates all workings of a Partnership unless provisions are otherwise provided for in the Partnership Agreement which will be signed by all partners in the firm. All members of the partnership can, as outlined in the PA at section 19, alter the rules under which they operate by express Agreement.

In this situation, an express agreement was entered into, which would override all provisions of the PA, yet this express agreement makes no comment on expulsion of partners nor on the sharing of profits between partners which are the two areas affecting William. Under s. 25 of the PA, no majority of partners can expel another partner unless the power is provided for under an express agreement. As stated above, this power was not granted and so John, Kate and Apple cannot expel William (Slorach, 2003). Under s.

24 of the PA, all partners are to share the profits made equally unless a different profit distribution arrangement has been agreed expressly. Again, nothing has been expressly agreed and so s. 24 presides (Slorach, 2003) Peacock v Peacock (1809) 16 Ves 49, Farrar v Beswick (1836) 1 Mood & R 527. Both decisions made by John, Kate and Apple cannot be enforced by the courts and rather, can be reversed by court order if William attempts an action against them for breach of contractual duties enforced under statute. Contract law in the United Kingdom operates under a general principle of freedom to contract.

Parties can contract with whomever and under whatever terms they both decide. Some statutory legislation exists to limit the terms within the boundaries of fairness, such as the Unfair Contract Terms Act 1977, yet this is not always to the benefit of a consumer in a contractual transaction. Generally consumers are accepting terms which are non-negotiable and been implemented one-sidedly. In order to redress this imbalance and inequality between consumer and seller, the court and legislature have intervened with various measures of protection.

However, the extent to which these are of practical implication and the scope of protection these measures offer are questionable. The law, especially the legislative law, in this area is intricate and complex. The two primary statutory instruments of importance are the Sale of Goods Act 1979 (SGA) and the Supply of Goods and Services Act 1982 (SGSA), both fundamentally being applied to the same contracts which relate to the transfer of goods. A sale is defined as a transfer by mutual assent of the ownerships of an object from one legally recognized person to another legally recognized person Kirkness (Inspector of Taxes) v John Hudson & Co.

Ltd. [1955] AC 696, Beecham Foods Ltd v North Supplies (Edmonton) Ltd [1959] 2 All ER 336. If the transaction involves consideration which is not money, then the exchange is not deemed to be a sale Read v Hutchinson (1813) 3 Camp 352. The statutory law available does not directly apply to transactions which do not involve a sale despite some arguing that the SGSA implies cover under the terms it has outlined. A fundamental problem with the law in this area are the segments which it omitted to comment on.

For example, the SGA only deals with the law with particular and peculiar reference to the law of sale. The same concept applies to the SGSA, as mentioned above, and so neither touch upon questions which are common to the whole law of contract (SGA s. 62(2)). If a questions arises on a common contractual point, such as if a valid offer was made, or if adequate acceptance was provided, whether sufficient consensus exists or as to the subject matter or identity of the parties, then the parties must make reference back to the general law of contract.

Further the SGA only relates to the goods which are defined by the act as such and therefore are covered by the act Westropp v Solomon (1849) 8 CB 345 at 373, Raphael & Sons v Burt & Co (1884) Cab & El 325). The transfer of other chattels or undefined goods are left to be regulated by the general law (Smith, 2000). The purpose of the legislation is to provide protection for the consumer in an area which is potentially difficult for a consumer to rely on when basing claims and actions purely on the general law of contract.

The general law of contract in the United Kingdom is extremely complex and difficult to maneuver through without clear-cut case grounds. A consumer stands at a disadvantage to a seller as usually the seller is the only party providing terms to the contract. The consumer has to willingly accept all the seller’s terms to enable the transaction to occur. The legislation applies particular terms the seller must adopt in the interests of the consumer such as that a product will be fit for purpose (s. 14 SGA). However, a fundamental principle in contracting is that of the freedom to contract (Smith, 2000).

Before the SGA, no rule of law existed which prevented persons from making any form of bargain available to them based on their talents in persuasion and personal knowledge of contracts Calcutta and Burmah Steam Navigation Co v De Mattos (1863) 32 LJQB 322 at 328. Some of the first legislation regarding consumer rights, set out the Sale of Goods Act 1893 attempted to preserve this freedom, expressly setting out that any duty, liability or right which arises in a contract under law could be expressly negated or varied by express dealing or agreement between the parties provided such dealings were used to bind the parties.

In the SGA, this concept is retained but the Act is made provisional to the Unfair Contract Terms Act 1977 (UCTA). UCTA limits the extent to which parties can impose terms onto one another. Fundamentally, UCTA provides that particular terms are to be fair and a term which places one person at a disadvantage to another, but this being a considerable disadvantage (Smith, 2000). However, a flaw in this legislation is that UCTA can be contractually excluded from an agreement by a simple clause stating that it does not apply to the agreement.

This of course renders the function of the statute completely at null. Yet, despite the contractual, statutory, common law and legislative efforts made to the protect the consumer and regardless of the effect, intention and result they provide on paper, the fact can not be missed that in practice, with regards to a consumer, the legislation may be much further reaching on a daily basis than given credit for. Ultimately the Department of Fair Trading (DTI) and consumer watchdogs regulate the industry of trade heavily and the backbone of such statutes.

Most average, capitalist consumers would never attempt to pursue a claim or an action in court with regard to a breach of one of the statutes, nor would most even make a complaint but the standards at which services and goods are currently being provided en masse have been significantly improved by the implementation of such legislation. No trading business wants to be bombarded by the DTI or worse by a consumer watchdog exposing the true nature of their potentially rip-off business on a public medium.

It would often mean the end of trading for the particular entity involved. With this practical approach in mind, the law of contract has made some honourable changes towards adequately protecting the consumer. The question to ask if it is even possible to adequately protect the consumer in today’s society where competition drives the economy and to survival is only for the brashest and most ambitious corporations.