The
Andersons received accepted a quotation from Humphrey which had priced the
price of carrying out renovations at $ 165,000. By so doing, did they intend to
create legal relations?
The
validity of any agreement is pegged on the intention of the parties to create
legal relations. The intention to create legal relations implies that the
parties to an agreement are willing to be held accountable to their actions as
stipulated in the agreement (Burrows, Finn and Todd, 2002). As a general rule,
agreements between members of a family are presumed to have no intention to
create legal relations. However, in specific cases, courts may determine that
the agreement between family members had the intention to create legal
relations ab-initio. However, some
agreements, by their very nature exhibit the intention to create legal
relations notwithstanding the fact that they are among family members. This is
especially common in agreements involving the operation or the running of a
business entity (Burrows, Finn and Todd, 2002). The nature of business
operations is such that the parties to the business would constantly be
involved with third parties that cannot be party to their domestic agreements hence
such agreements constitute binding contracts even when such an intention has
not be clearly expressed. The same goes to the agreements formed between the
members of the family and the third parties as pertaining to the execution of
any agreed tasks. This can be illustrated in the case of Carlil v Carbolic
Smokeball Co. in 1893 where the company offered to make a compensation amount
if they used their products and still caught influenza (Burrows, Finn and Todd,
2002). On refusal to pay, Carlil sued and the courts ruled that the offer was
binding as it implied an intention to create a legal relation (Burrows, Finn
and Todd, 2002).
Humphrey
produces a quote promising to renovate the house in exchange for a fee of $
165,000. This represented an offer that would be binding upon acceptance by the
Andersons. On the other hand, upon acceptance, the Andersons would be bound to
pay the stated amounts upon execution of the tasks outlined in the offer.
Therefore, the intention to create legal relations is present.
The
relationship in question is first and foremost a business decision. It must
therefore be concluded, considering the nature of the agreements that there was
an intention to create legal relations. The resultant contract is legally
binding and enforceable by law.
Considering
the chronology of the events and negotiations between the Andersons and Premier
Renovation, has the elements of offer and acceptance been satisfied in order to
constitute a valid contract?
An
offer is a promise to a second party promising to fulfill certain obligations
upon acceptance of the offer. It is a tentative promise subject to given
conditions or upon acceptance by way of committing to honor the request
contained therein (Benson, 2001). Offers are specific to the offeree. This
implies that a different party cannot adopt an offer meant for another person
and expect to constitute a contract on its basis. Offers should be
distinguished from invitations to treat which are common in the case of
advertisements. For valid contracts to be formed, offers must be accepted
within the time frame outlined and in the manner specified (KcKendrik, 2005).
The offer is revocable at any point before acceptance by the offeror. This is
provided that the revocation is properly communicated.
Acceptance
of an offer forms the contract. This must be done in the manner specified by
the offer and within the time allowed by the offeror. Any acceptance that does
not follow the specified procedures is null and do not amount to the formation
of a contract. This may either be verbal, written or in other specified forms.
Acceptance must be unequivocal and unconditional. The proposal of any new
conditions by the offeree amounts to a counter offer and must be then accepted
by the initial offeror unconditionally before the contract can be said to have
been formed (Maree, Graw and Tiong, 2006). The offer and acceptance can be said
to be the backbone of any valid contract and must be accorded the relevant
level of importance in all agreements.
The
advertisements cited by the Andersons on September 1 amount to an invitation to
treat and not an offer. Similarly, the consultations between the two parties on
September 4 were just that and cannot be categorized as an offer or acceptance.
The first offer in the study is made by Premier Renovations on September 14 who
offered to renovate the property at a price of $ 205,000. The Andersons propose
a different price of $ 200,000 amounting to a counter-offer and not an
acceptance. Premier Renovations subsequently decline the counter-offer and no
agreement is therefore made at this point. After this rejection, the Andersons
sought quotations from other companies that engage in renovation of properties
between September 15 and September 20. The quotations made by these companies
constitute offers with pricing and promise of quality standards that the
Andersons did not find acceptable. In the absence of acceptance by the
Andersons, no contract is formed at this point.
On
September 21, the Andersons phone Premier Renovation stating that they were
prepared to pay the $ 205,000 stated earlier. This wan offer and it was rejected
by Premier Renovation on the grounds of lack of capacity after accepting a new
contract to refurbish a different property. On September 29, Frank sought to
accept the offer by the Andersons. However, the offer had lapsed on September
21 with his last rejection. The communication should therefore be interpreted
as an offer by the Andersons who may accept is of they were still at liberty to
work with Premier Renovations.
For
a contract to be valid there must be an offer and acceptance. The case above shows
several incomplete circles relating to offers and counter-offers where there
was no valid acceptance. In view of the foregoing, no valid contract was formed
in this case.
Regency
Revitalisations Ltd presented the Andersons with information that they later
found to be untrue. The aim of this section is to establish whether the
misinformation constituted misrepresentation and whether the Andersons can
invoke the legal provisions on misrepresentation to claim for damages from
Regency Revitalisations.
Misrepresentation
as described by the law of contract basically refers to falsified statements of
fact or law presented to one of the contracting party by the other (s) prior to
the formation of the contract (Coote, 2006). For a falsification to amount to
misrepresentation and therefore warrant any remedies, the presented information
should have been presented before the contract formation and in one way or
another influenced the formation of the contract. Misrepresentation can either
be direct or implied where the implied form includes the presentation of
information in a manner that alludes to some meaning which is then relied upon
by the other party to the contract to enter into such contract (Parliamentary
Council Office, 2011c). Misrepresentation can either be fraudulent, negligent,
and innocent.
Innocent
misrepresentation involves the presentation of wrong information by a person
who genuinely believes in the accuracy of such information. Negligent
misrepresentation involves the presentation of wrong facts occasioned by
failure to conduct the necessary background check due to recklessness (Poole,
2006). Fraudulent misrepresentation involves deliberate misinformation to
influence the decision of the other party to the contract (Parliamentary
Council Office, 2011c). This may be done through falsification of documents to
portray a false image of an organization, misrepresentation of the level of
expertise in the organization and others. Under normal circumstances, the
burden of proof that a party engaged in fraudulent misrepresentation lies on
the aggrieved party.
Misrepresentation
does not usually compare to a puff which basically refers to minor
exaggerations on the functionality of products as is common with
advertisements. Such representations are considered to be of little legal
consequence since the presentation is usually in such as way that an ordinary
consumer would not believe it as a statement of fact. However, recent
developments in the legal environment in New Zealand have seen the window for
such practices close significantly. This is especially so with the introduction
of the Fair Trading Act of 1986 whose significance has increased in recent time
(Parliamentary Council Office, 2011d). This statute requires that advertisers
refrain from making proclamations about their products unless the qualities
states actually existed in the products (Parliamentary Council Office, 2011d).
The
determination of remedies is governed by the Contractual Remedies Act which
distinguishes between the levels of remedies applicable for the various forms
of misrepresentation. These provisions provide for compensation for damages and
cancellation of contract depending on the seriousness of the misinterpretation.
The
Andersons entered into negotiations with Regency Revitalisations whose managing
director, Maurice, intimated to them that he had been in the industry for 45
years and without a single dissatisfied customer. This statement implied that
the company had been in operation for as long and with an impeccable record
over the stated time. This information was aimed at building confidence and
lead to the formation of the contract. After the formation of the contract, the
Andersons observed that the work being done was of poor standards and worse
than they had envisaged when signing the contract. This was coupled with the
fact that the work was behind schedule. As a result, the Andersons sought a
second opinion which confirmed their observations about the quality.
A
background check revealed that the company was barely 3 months old and that the
Andersons were their first customers. The information presented by Maurice was
false and misleading. The information by
Maurice constituted fraudulent misrepresentation. Maurice further engaged in falsification
by getting individuals to pose as customers and write recommendations which
were used by the Andersons as the basis for entering into the contract. The
Andersons were therefore entitled to claim damages from Regency Revitalisations
and to cancel the contract if they so desired. The damages could include a wide
range of costs including the actual amount incurred in paying the company, loss
of projected revenues and other losses that could be linked to this
misrepresentation.
Misrepresentation
involves presentation of false information by one party to the contract which
is relied upon by the other party to enter into the contractual agreement. The
law allows for the aggrieved parties to claim damages for the losses incurred
as a result of such misrepresentation once they can prove that indeed
misrepresentation occurred and that they relied on the information presented to
enter into the contract.
The
Andersons contracted two persons to engage in the decoration of their property,
Todd and Amy aged 19 and 16 respectively. This section seeks to determine
whether they had the contractual capacity to enter into the contract and
whether they were therefore bound to honor the contract
For
a contract to be valid, the parties to the contract must have the legal
capacity to enter into contracts (Phillippa and Martin, 2006). Such persons
generally do not include minors, persons of unsound mind, aliens, people who
have been declared bankrupt, persons under the influence of alcohol and others
as specified by the provisions of the law of contract. In New Zealand, the
majority age is 18 years and it is therefore not possible to enter into binding
contracts with persons under the specified age as outlined in the Minors
Contracts Act 1969 (Parliamentary Council Office, 2011b). Such minors would
therefore be at liberty to disown the contracts and the aggrieved party would
not be in a position to enforce the contract. However, the courts can at their
liberty determine that certain contracts can be enforced, especially those that
relate to the welfare of the minors such as insurance contracts.
The
Andersons engaged the services of a 19 and 16 year old persons, both of whom
would jointly carryout the tasks agreed upon as independent contractors at the
given price. The two contractors later find it impossible to execute the
contract at the price they had quoted earlier and are in a dilemma on whether
to abdicate their duty or not. When considering their options, the validity of
the contract based on their contractual capacity must be examined. Amy and Todd
signed the contract jointly as one party. However, it must be noted that Amy,
16, is a minor and therefore with no contractual capacity. Amy, a minor, can
opt to walk out of the contract without attracting actionable penalties.
However, in the event that she pulls out, Todd would be forced to conclude the
work alone since he had entered into the contract jointly with a minor to
execute the task set and could not walk away since he had the contractual
capacity when entering into the contract.
The
parties to a contract must have the requisite contractual capacity for such
contracts to be binding on them. Persons who are under the age of majority (18
years), persons of unsound mind, and persons under the influence of alcohol do
not have the contractual capacity and cannot therefore form binding contracts.
Amy is therefore free to abdicate her responsibilities as outlined in the
contract.
Fantabulous
Foliage demanded for the cost of designing the layout after the Andersons
settled for a competitor’s quotation. Should the Andersons pay the $ 450
demanded? Secondly, after Landscape Architects agreed to waive the sum of $ 700
from the fees, they demanded for it. Should the Andersons pay that as well?
Consideration
is something of value that is exchanged between the offeror and the offeree in
exchange of the offer specified in the contract (Valente, 2010). It comes from
the offeree to the offeror. For instance, where a contractor offers to redesign
a house in exchange for a $ 50,000 fee, the consideration is the 50,000 the
offeree is expected to pay to the offeror. The consideration does not need to
be adequate. However, both the offeror and the offeree must be fully aware of
the consideration in question before they enter into a contract (Chen-Wishart,
2007). A party to a contract cannot therefore demand for a consideration that
was not agreed upon prior to entering into the contract. Consideration needs to
be a promise for future undertaking, and not an action that happened in the
past. Past consideration is not enforceable except where it involves services
of a business nature that were offered at a persons request and other
circumstances as would be determined by the courts of law
After
failing to capture the substantive contract on landscaping, Fantabulous Foliage
demanded for $ 450 from the Andersons as the charge for designing the layout.
As stated above, consideration needs to be known to all parties of the contract
prior to the contract. Since no consideration was agreed upon at the time that
Fantabulous was agreeing to avail the designs, the agreement between them and
the Andersons cannot be termed as a contract. Moreover, the request for a
proposed layout did not come with a promise to have Fantabulous handle the
substantive contract. The layout would therefore amount to an offer (albeit
detailed with requisite designs) which was not accepted. Therefore, the
Andersons are not bound to pay the amount demanded.
On
the case between Landscape Architects and the Andersons, the consideration was
predetermined at $ 8700. This is the amount due to them at the end of the
contract. The promise to waive the $ 700 does not amount to an alteration of
the consideration as envisaged at the formation of the contract. Given that
Landscape has fulfilled their responsibility as outlined in the contract, and
given that the promise to waive the fees was negated before the final payment
was done, the Andersons are bound to pay the $ 8700 to the full.
The
section seeks to establish whether the Andersons can legally be discharged from
their contractual obligations for the contracts they no longer need to keep
There
are various ways in which a contract can be discharged. The first way is
through the completion of the tasks set out in the contract (Trebilcock, 1993).
Where both parties to a contract have fully discharged their duties, the
contract can be said to have been fully discharged. It can also be discharged
due to proven underperformance of the duties outlined in the contract. The
second way in which contracts can be discharged is through frustration
(Parliamentary Council Office, 2011a). When it reaches a level where one or
both parties to the contract are no longer able to execute the duties outlined
by the contractual agreement, the contract discharge is possible (Parliamentary
Council Office, 2011a). The contracts can also be discharged by agreement. The
contracting parties could agree that if one of the parties decided to
discontinue at any point, they were at liberty to do so provided the outlined
conditions are fulfilled.
The
Andersons need to exit some of the contracts they had entered into. A contract was entered into with the gardener
whose performance has been far from satisfactory. Since the gardener has failed
to fulfill his duty to the letter and spirit of the contract, the Andersons
were at liberty to discharge the contract. In second case, the Andersons enter
into a contract to purchase 60 desserts each month for 24 months. The
regulations by the health authorities made it impossible for them to continue
having storage facilities (freezers) and they could no longer store the
desserts. This is a frustrated contract due to factors beyond the control of
either party to the contract. The Andersons can cite frustrations and discharge
the contract. The third contract involves a scenario where the contract had
outlined mechanisms for discharge in the event that the Andersons needed to
pull out of the contractual agreement. This involved Acorn Linen with whom they
had agreed that a surcharge of $ 100 would be needed if the Andersons needed to
terminate the contract prematurely. The Andersons therefore had this option of
termination.
Termination
or the discharging of contracts can be done differently depending on the
prevailing circumstance. The most common ways of doing so involve mutual
agreement between the parties to the contract, discharge due to unsatisfactory
performance, and discharge due to frustration where one of the parties is no
longer able to discharge the responsibilities allocated by the contract.
7.0
Remedies
A
contract with Heaven Scent Plumbing had been poorly implemented and led to
significant losses by the Andersons. This section seeks to determine the
remedies available to the Andersons in this regard
The
remedies available to the Andersons are outlined under the Contractual Remedies
Act 1979 of the law of New Zealand (Parliamentary Council Office, 2011c). The
act stipulates that an aggrieved party can claim damages relating to the losses
incurred as a result of failure by the other party to the contract to execute
their duties as outlined in the contract. The damages recoverable include the
direct costs as well as the indirect costs that can be linked to such omission
or commission (Parliamentary Council Office, 2011c). This was illustrated in
the case of Riddell v Porteous (1999) where Porteous (the contractor) was
required to pay damages to the plaintiff for breaching contractual obligations
(Contract law, 2011).
Heaven
Scent Plumbing Ltd were contracted to provide plumbing services to the resort.
The plumbing company had used tap fittings of lower quality than specified in
the contract. Secondly, due to the plumber’s poor performance, the kitchen
pipes had burst forcing the Andersons to engage another plumber to rectify the
problem and to transfer one of their guests to another motel. This was later
followed by malfunctioning of the fittings fixed into the walls which
necessitated the removal of the tiles in order to fix them. The damages claimable
by the Andersons would therefore include the following: the cost of paying the
emergency plumber, the cost of fixing the fittings in the walls; the cost of
replacing the tiles affected; the cost of hosting the client in a neighboring
hotel; and the cost of replacement of all the fittings supplied in order to
install the desired quality.
Contractual
obligations need to be carried out with utmost precision to ensure that losses
are not incurred unnecessarily. This is because the aggrieved parties are
entitled to damages that arise from any failure to discharge the outlined
duties. Under normal circumstances, the damages claimable by the aggrieved
parties are dependent on their ability to prove that the arising costs were as
a result of the failure by the other party to discharge their duties.
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