Research Assignment

Research Assignment

RESEARCH ASSIGNMENT 12

Business Law Questions: Case Study

Contracts

In law, a contract is an agreement between two individuals whovoluntarily engages in legal obligations based of ‘offer’ and‘acceptance.’ Proof of contract is normally through writing, oralor through individual actions. To this end, a breach of contractleads to ‘damages payment’ based on expected ‘performance.’Offer and acceptance are based on mutual assent between the partiesinvolved. In contract two parties agree to accept and offer terms asper the exchange of the transaction. It is presumed that those whoengage in contracts should have rational and objective minds and beready for legal obligations. Contracts are based on considerationthat the other party is interested in the items exchanged1.

Breach of contract

Breach of contract is a legal cause of action where the bindingagreement of exchange is not honored by either party involved in thecontract. Breach of contract is legally known as a civil wrong.Breach of contract may be categorized as a ‘minor’ breach in theevent that a partial breach of contract is immaterial. In othercases, a breach of contract is when there is substantial performancein the contract honor2.In a ‘minor’ breach the offended party cannot sue the other partyfor actual or specific performance but can sue for damages caused byother party3.For instance, if a contractor is under contract to use red color forwater pipes and instead uses blue color for the same type of pipes,the breach of contract in this case is ‘minor’ and the homeownercan only be compensated for ‘damages’ caused by using differentcolor. In this case there is no damage caused if the blue pipesfunctions in the same way as those in red color4.However, if the color was a condition set during the agreement, andthen a breach in this condition becomes a ‘major’ breach ofcontract. Material breach is another aspect that involves failure byone party to perform as expected this calls for damages in payment.Material breach involves using materials that do not abide as per thecontract agreement. However, despite the various forms of contractbreaches, any breach of contract or agreement is liable for lawsuitsand damages in payment.

Facts according to the case study

  • Timmy borrows money from uncle Sanjay to buy a special gift for his mother.

  • Timmy decides to use the money to buy Tiger’s Bike so that he can win the $6000 prize offered.

  • Timmy makes contract with Ethel to buy his Piano.

  • Tiger’s Bike cancels the offer of $6000 and advertises it through the local newspaper.

  • Ethel sells the Piano without notifying Timmy despite their agreement.

  • Timmy decides to enlist at the University rather than join an apprenticeship as earlier agreed with uncle Sanjay.

Issues as per the case

  1. Timmy engages in breach of contract with his uncle: Timmy decides not to join the apprenticeship and enlists at the university and thus cannot pay Uncle Sanjay on time as agreed.

  2. Tiger Bikes engages in breach of contract by canceling the offer prize despite engaging in contract with Timmy.

  3. Ethel breaches the contract with Timmy over the sale of the Piano despite agreeing with Timmy on his intention to buy it.

Tasks as related to the facts

  • Advise to Timmy on whether he has any claims for the breach of contract against Ethel or Tiger Bikes.

  • Advise Uncle Sanjay on whether he has any claim against Timmy.

Relevant legal principles according to the Case study

Issue 1: Timmy v Tiger Bikes (legal Principles involved)

According to the Australian contract law, there are variouscategories that make up a contract (Commonwealth v Verwayen,1990)5.These categories involve formation, scope, content, avoidance,performance and remedies6.According to the facts presented in Timmy’s case, there are variouscategories of contract breaches. First, according to the facts, TigerBike breached the terms of agreement with Timmy by cancelling theoffer while Timmy was about to win the Melbourne trip. There was acandid consensus between Timmy and Tiger Bikes that if he worn thetrip he could win the $6000 prize.

Tiger and Bike terminated the offer agreed with Timmy even when Timmyhad accepted the offer7.This was a gross breach of contract given that Timmy learned aboutthe offer cancellation through the local press. Under the TheCommonwealth law, the offer giver may revoke the offer before ithas been accepted but must be communicated to the person receivingthe offer. However, according to the Statutes of Carlillv Carbolic Smoke Ball Co8,if the offer is made to the entire world, then communication isalso done through the same platform9.When Timmy learned about the Tiger Bikes offer, the contract wasunilateral (made to the whole world through press) and thus did notinvolve Timmy10.Tiger Bikes was engaged in sales promotion for the wider market andoffered any person the opportunity to win $6000 if they completed thetrip11.

In addition, Timmy did not take the required measures ofcommunicating the offer acceptance to Tiger Bikes but insteadwent ahead and bought the bicycle for the trip. In this case, thecontract between Timmy and Tiger Bikes was not formally sealedbetween the two parties. Timmy should have communicated the offer ofacceptance as required by the Australian Contract Law12.Timmy just accepted the offer and remained silent. However, Timmy’saction of buying Tiger’s bike to cover the trip, as well as, hiseventual completion of the trip indicated that he had accepted theoffer and thus Tiger Bikes should have compensated him for thedamages13.

Furthermore, after buying Tiger’s bicycle the firm should havecommunicated to Timmy. However, Tigers’ bike went ahead and issueda notice through public press about the cancellation of the offer14.According to the contract law and its various legal principles,Tigers Bike breached the contract and thus Timmy is entitled to‘damages payment.’ According to Feinman and Brill (2006), anadvertisement is an offer and in the case of Timmy and Tiger Bikescontract, the advertisement was an offer.

Advice to Timmy for his claims against Tiger Bikes

Tiger Bikes engaged in gross violation of contract with Timmy.According to the contract law, any offer based on an advertisementqualifies to be a binding element in a contract. If the offer isaccepted by the other party, it leads to a binding contract where twoparties must benefit from the exchange terms15.Tiger Bikes had laid out the offer terms through a pressadvertisement and Timmy had accepted the offer by buying the requiredbike and making the trip to Apollo Bay as well as, ‘wining’ therace. However, during his return journey, Timmy learned of the ‘offerrevocation’ through mass media and this was across violation of thecontract. In particular, Tiger failed to communicate ‘revocation ofoffer’ directly to Timmy and on time leading to gross damages16.In this case, Tiger Bike failed to live up to its ‘tenderperformance’ and should pay Timmy the whole amount as well asdamages payment for the ‘frustrated purpose.’

In addition, Tiger Bikes was inconsiderate and incompetent in livingup to their part of bargain. As such, Timmy should demand full thecompensation of $6000 for ‘winning’ the race and an additionaldamage payment for the ‘frustrated purpose.’ Tiger Bikers failedto inform Timmy about the cancellation of the offer and thus areliable for any ‘inconvenience’ suffered by Timmy17.

Issue II: Timmy v Uncle Sanjay (Legal Principles involved)

Timmy also engaged in a breach of contract with his uncle over themoney lent to buy a special gift for his mother. According to theterms of the agreement, uncle Sanjay was to provide $3000 to Timmywhich would be paid immediately after Timmy joins his apprenticeship.In this case, the elements of contract and offer were accepted byeach party. However, rather than using the borrowed money for itsintended use and joining the apprenticeship, Timmy violated thecontract terms and was likely unable to pay uncle Sanjay as had beenagreed. Although, Timmy engaged in the contract objectively, he didnot reveal his full intentions to his uncle thus breaching thecontract terms18.

According to the Australian Contract Law, one party engages ina contract based on what others reveal objectively.19When Timmy goes to his uncle to request for funds his intent is tobuy his a special gift for his mother but this change immediately hecomes across an advert that promises $6000. In this case, Timmyviolates the offer acceptance contract under the ‘meeting of minds’theory of contract20.Another legal issue is that, Timmy violated the ‘tender ofperformance’ with his uncle as related to Startup v Macdonald(1843) (Australian Contract Law)21.Timmyhad a contractual agreement to pay his uncle immediately afterjoining the apprenticeship. However, rather than joining theapprenticeship to get money and pay uncle Sanjay, Timmy opted to joinUniversity and this was a breach of contract22.Timmy was thus liable for damages of ‘non-acceptance’ for thecontract. To this end, uncle Sanjay is entitled to claims fromTimmy23.

Advice to Uncle Sanjay on Claims against Timmy

The Australian contract law stipulates that, a breach of an agreementeither in material or immaterial form is liable for compensation. Thefirst thing is that Timmy had engaged with Uncle Sanjay in mutual andintentional agreement for $3000 which would be repaid immediately.According to Uncle Sanjay, Timmy’s intention was ‘objective,’‘responsible’ and ‘reasonable’ as per the agreement24.In this case, Uncle Sanjay was thus ‘influenced’ to believe thatTimmy would pay as agreed on the material day. To this end, bothparties were bound to the contract based on the grounds of reasonableintentions25.However, unknown to uncle Sanjay, Timmy used the borrowed money forother ventures.

In addition, Timmy failed to start his apprenticeship that wouldenable him pay and thus breached the contract. As such, Uncle Sanjayis legally justified to sue and demand compensation from Timmy26.Timmy is liable for punitive damages against Uncle Sanjay forviolating their agreement and his delay in paying the borrowedmoney27.In this case, Timmy is the breaching party and fails to be‘considerate’ to Uncle Sanjay’s side of bargain. Furthermore,Timmy failed to provide uncle Sanjay with an anticipatory breach ofagreement notice when he joined University rather than joining anapprenticeship to pay uncle Sanjay. Therefore, uncle Sanjay must showthat Timmy breached the contract by creating foreseeable loss anddemand compensation28.

Issue III: Ethel v. Timmy (Legal Principles involved)

Although Timmy had engaged in contract agreement with Ethel over thesale of his piano, there was no mutual contract binding the two. Inpart, according to the contract law, each party in a contract mustaccept the terms of offer29.Timmy had expressed his willingness to buy the piano at $4000 whichhe would pay in installments. However, both Timmy and Ethel did notabide to the basic elements of the contract agreement as related toSmith v. Hughes case (Australian Contract Law)30.Timmy only sent the acceptance offer letter at a later date whenEthel had already sold the Piano. To this end, the only damage donewas ‘minor’ breach of contract and Timmy was entitledfor‘considerate specific performance’ compensation. This is truebecause, Timmy had agreed with Ethel that he would pay for the Pianoin installments and thus he was entitled to ‘expectation damages’from Ethel31.

Furthermore, Ethel would have been considerate that Timmy had madehis ‘willingness’ to purchase the Piano. In addition, during theagreement Ethel only ‘smiled,’ a sign that he had ‘agreed’ tothe terms of sale. To this end, Ethel breached the contract and wasthus liable to pay Timmy ‘expectation damages’ Timmy wasexpectant that he would buy the Piano and this was evident in hisacceptance letter, albeit it reached late32.

Advice to Timmy on his claims against Ethel

According to the Australian contract law of ‘offer and acceptance,’Timmy is entitled for compensation from Ethel for breaching thecontract terms. In particular, according to commercial contracts,individuals are legally bound if they both have intention in theterms of offer and acceptance3334.In this case, Timmy, as well as Ethel had ‘agreed’ that Timmywould pay for the Piano in installments and this came to pass throughthe offer acceptance letter35.

Furthermore, by selling the Piano before Timmy had rejected orconsented for the offer was tantamount to ‘frustration of purpose’according to the Australian contract Law36.To this end, Timmy’s intent and purpose to buy the Piano wasfrustrated by Ethel and thus he is entitled to claims for breach ofcontract based on specific performance and ‘expectation damages’(Australian Contract Law)37.Assuch, Timmy is justified to lay claims against Ethel for the grossviolation of the sale contract. This is so because Timmy had shown‘considerable’ intention and willingness to purchase the Piano(Ewan, 2005). Timmy is entitled for ‘expectation damages’ becauseEthel did not even ‘consider’ communicating to Timmy that his‘acceptance’ had been rejected leading to ‘frustration ofpurpose’ on Timmy’s side38.

Conclusion

Contracts are binding agreements between two parties where each partyparticipates under conditions of mutual agreement based on terms andcondition of offers. Each party is legally obliged to safeguard theagreement to avoid breach of contract on offers, obligations andacceptance made. When a contract is breached by one party, thebinding cord ceases to exist and the breaching party should pay alldamages to the non-breaching party. In the above case study, thereare various breaches of contract by individuals involved. Timmybreached contract with uncle Sanjay and has no alternative than topay all amounts. Tigers Bike also breached their contract with Timmyand thus should compensate Timmy for all damages incurred. Timmy isalso entitled to compensation for ‘minor’ breach of contract byEthel of ‘expectation damages.’ Breach of contract is onlyremedied through payment of damages, payment for specificperformance, cancellation or restitution.

References

Bronaugh R. (1976). “Agreement,Mistake, and Objectivity in the Bargain Theory of Conflict.”William &amp Mary Law Review.

Clarke Julie (2015). “Australian Contract Law.” Retrieved fromhttp://www.australiancontractlaw.com/

Ewan McKendrick, (2005). Contract Law – Text, Cases andMaterials. Oxford University Press.

Feinman JM, Brill SR. (2006). “Isan Advertisement an Offer? Why it is, and Why it Matters.”Hastings Law Journal.

Jacob Ziegel, (2000). “The Future of the International SalesConvention from a Common Law Perspective” New Zealand BusinessLaw Quarterly (6) 336, 338.

John Felemegas, (2000). “The United Nations Convention on Contractsfor the International Sale of Goods: Article 7 and UniformInterpretation” Pace Review of the Convention on Contracts forthe International Sale of Goods (CISG) 115, 276.

Koffman L, MacDonald E. (2007). The Law of Contract. OxfordUniversity Press.

Willmott, L, Christensen, S, Butler, D, &amp Dixon, B (2009).Contract Law, Third Edition, Oxford University Press, NorthMelbourne.

1 Ewan McKendrick, (2005). Contract Law – Text, Cases and Materials. Oxford University Press.

2 Clarke Julie (2015). “Australian Contract Law.” Retrieved from http://www.australiancontractlaw.com/

3 Willmott, L, Christensen, S, Butler, D, &amp Dixon, B (2009). Contract Law, Third Edition, Oxford University Press, North Melbourne.

4 Ewan McKendrick, (2005)

5 Commonwealth v Verwayen (1990) 170 CLR 394 AustLII

6 Bostik v Gorgevski [1992] FCA 209.

7 Feinman JM, Brill SR. (2006). “Is an Advertisement an Offer? Why it is, and why it Matters.” Hastings Law Journal.

8 Carlill v Carbolic Smoke Ball Co

9 Clarke (2015)

10 Australian Contract Law

11 Ibid

12 Powell v Lee (1908) 99 L.T. 284 Robophone Facilities Ltd v. Blank [1966] 3 All E.R. 128

13 Ibid

14 John Felemegas, (2000). ‘The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation’ Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) 115, 276.

15 Feinman and Brill (2006)

16 Ibid

17 Ibid

18 Bronaugh R. (1976). “Agreement, Mistake, and Objectivity in the Bargain Theory of Conflict.” William &amp Mary Law Review.

19 Lucy V Zehmer, (1996) Va 493 84 S.E. 2d 516

20 Willmott, L, Christensen, S, Butler, D, &amp Dixon, B (2009). Contract Law, Third Edition, Oxford University Press, North Melbourne.

21 Startup v Macdonald (1843)

22 Wheeler v Philip Morris Ltd [1989]

23 Ibid

24 Ibid

25 Ibid

26 Ibid

27 Pty Ltd v State Rail Authority of NSW

28 R v Clarke (1927) 40 CLR 227 [1928] ALR 97 (1927) 1 ALJ 287.

29 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 [1891-94] All ER Rep 127 (1892) 67 LT 837, CA

30 Smith v. Hughes case

31 Ibid

32 Commonwealth v Verwayen. 1990

33 Ibid

34 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 [1891-94] All ER Rep 127 (1892) 67 LT 837, CA

35 Ibid

36 Ibid

37 Henthorn v Fraser [1892] 2 Ch 27 at 37 per Kay LJ

38 Clarke v The Crown (1927) 29 WALR 102