Question

Scenario A

Kanye, an accounting student at Centennial College, interviews for a job with two firms. He really wants to work for Better Accountants LLP (“Better”) but gets an offer of employment from Good Accountants LLP (“Good”) first and accepts it. When he is signing the contract with Good, he tells the receptionist that he would really like to work for Better. The receptionist tells him “Don’t worry about it. We will let you cancel the contract if you want.” Kanye reads the written contract and notices that there is nothing in it that would let him cancel.

A week later Kanye receives offer from Better, which he also accepts. He does so because he believes he is economically better off with Better and will be able to “cancel” his acceptance with Good.

a. Is there a valid employment contract between Kanye and Good, or Kanye and Better? Explain your analysis, considering the six elements of a valid contract.

b. Are both contracts enforceable against Kanye? Explain your analysis.

c. What is going to happen to Kanye now? What should he do?

d. What should Kanye have done to avoid the situation that he is in?

Each question should be more than 400 words. The subject is Business law. thus is a case study to be answered

Answer 1

Answer a)

Elements of a valid contract that make include –

1. Offer and its acceptance with intention to create legal relationship

2. Competency / Capacity to contract

3. Lawful consideration

4. Lawful object

5. Not expressly declared to be void

6. Free consent of both / all parties involved

Now let us review each of these points in the context of Kanye’s situation

1. Offer and its acceptance – In case of both Good Accountants LLP “Good” as well as Better Accountants LLP “Better” there is valid offer by the firms of a contract to employment and its acceptance by Kanye

2. Kanye being an accounting student at college clearly indicates that he is competent to contract lawfully. To be competent to contract the person should be –

a. Capacity to contract i.e. of legal age to contract (Major as per applicable laws)

b. Of sound mind

c. Who is not disqualified from contracting by any law to which he is subject

3. There is nothing in the contract between Kanye and his prospective employers that is against matters of public policy or expressly declared to be illegal. In other words the object of contract – employment is lawful

4. The consideration is pay or compensation offered by the firms in return for employment services of Kanye is again lawful consideration

Note – Object/ Consideration is considered unlawful if

a. It is forbidden by law

b. Punishable under criminal law of the country

c. Prohibited by some other legislation

5. The contract of employment is not expressly declared to be void

6. Consent is said to be free when it is not caused by –

a. Coercion – Consent by force / threats

b. Undue influence - act by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences

c. Fraud - A false statement of facts made knowingly

d. Misrepresentation - Misrepresentation means misstatement of facts or facts that are material to the contract by which one man misleads another to his injury

e. Mistake - when there is a misunderstanding with respect to legal provisions when it comes to obtaining consent

In the instant case, Kanye’s contract with “Better” is not affected by any of these and is said to be free, while Kanye’s Contract with “Good” is the result of the fraud by the receptionist that he would be able to cancel the contract if he so wills even though there is no clause to the effect expressly made in the contract.

Therefore there is valid contract of employment between Kanye and “Better”.

Answer b)

As per the Contract law, we have already discussed (in the answer a above) the ways in which consent can be influenced are discussed and in cases of coercion, undue influence, fraud and misrepresentation, the contract tends to be voidable at the option of the aggrieved party. However, in case of mistake, the parties can only avoid the contract in situations where there exists a bilateral mistake of the party with respect to the important facts of the agreement or if there is a problem regarding knowledge of foreign law.

As discussed earlier, in the case of Kanye’s contract of employment with “Better”, the contract satisfies all essential elements of a valid contract and is legally enforceable at the end of both the parties.

In the case of Kanye’s contract of employment with “Good”, however the element of free consent is not met since Kanye has signed the contract with “Good” as a result of intentional deception by the receptionist of the fact the contract can be cancelled at the option of Kanye even though the contract did not have any clause / agreement to this effect expressly stated therein.

Enforceability of contract could be seen the perspective of all parties involved thereto. In the first instance the parties involved being Kanye and “Good”. Now at the option of Kanye the contract is voidable i.e. he is entitled to rescind the contract at his end as he is able to prove that his consent was not free and obtained through fraud by intentional twisting of facts by the receptionist. In the second instance the contract is between Kanye and “Better”. In this case again the contract is enforceable at end of both parties involved since the contract is free from any material defects that would make it unenforceable / invalid.

Answer c)

The possibilities of situations arising in Kanye’s life include –

1. Kanye chooses to stay with “Better” and “Good” accepts his cancellation

This situation could arise if “Good” in fact accepts his cancellation of the contract of employment even though there is no clause to this effect. “Good” decides that it is not in their best interest to enforce the contract with Kanye.

2. Kanye chooses to stay with “Better” and “Good” does not accept his cancellation

In this situation “Good” chooses to enforce the contract of employment with Kanye. Kanye having already accepted employment with “Better” as well would have to resort to legal remedies available at his end and defend that his consent was not obtained in a free manner and that the consent was obtained due to a fraud. Consequently, the contract remains voidable at his instance and he chooses to rescind the same.

Kanye should at the earliest, keep “Good” informed about his inability to execute the contract of employment with them since he has entered into contract of employment with “Better” and as informed earlier to the receptionist and confirmed by her, he would like to exercise is right to cancel the contract with “Good”.

Depending on the response from “Good” to this, Kanye would have to face either of the situations as mentioned above.

Answer d)

To avoid the situation that Kanye is in presently, he should have made sure the contract of employment with “Good” contains a clause to the effect that Kanye would be able to cancel the contract. As a matter of fact, it is seen that Kanye had taken note of the fact that there is no cancellation clause in the contract of employment and yet did not insist on the same being included in the written contract. It is a known fact that the easiest to enforce terms within a contract or understanding between parties is when the terms of understanding between the parties are expressly written and stated to that effect. In the case of no express contractual terms it becomes the onus of the person wanting to exercise their right to prove to that there was a consensus to this effect in a court of law. Contracts are nothing but a set of laws and rules that govern the relationship between the parties to the contract. When the terms of the contract are expressly laid down, it leaves little room for ambiguity and misunderstanding.

It is possible that “Good” in its defense might state that Kanye had every opportunity to make sure that a cancellation term is included within the contract but chose not to do so. And that Kanye had read the contract fully and raised no objections at the time of entering to the contract.

At this juncture it is pertinent to point that the law exclusively does not dictate what the terms of a contract ought to be. It is the parties to the contract who decide what rules govern their behaviour as a consequence of the agreement that they sign. The law only restricts or prohibits the parties to contract from entering into certain illegal contracts or contracts with unlawful consideration.

Benefits of a written contract include –

1. Clarity in relationships and agrrement between parties

2. Avoiding potential contract disputes and litigation

3. Preventing misinterpretation of communications and agreements

4. Documentation to allow comprehensive representation and review by an experienced business law attorney

Therefore in conclusion as a matter of abundant caution Kanye ought to have ensured that there is a cancellation clause within his contract of employment with “Good” so that unnecessary ambiguity as to their relationship and unnecessary litigation could have been avoided. It is always prudent to expressly state the terms of the contract to avoid hardship in future.