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Wednesday, 2 October 2013

Contract law case study

Part one: Intention to create legal relations

Did The Andersons and Humphrey Plank to create an enforceable contact?
Relevant law:
In general presumption of intention, first, if the agreement is made between family or friends or of a social nature, it can be considered the parties are not intend to create a binding legal relationship; second, the presumption should be appropriate; third, there are enough evidence to prove the parties are doing business.
The situation of this case is similar to the case Carlill v Carbolic Smokeball Co [1893], the company promised if customers used their product still having influenza, they will pay 100. Then Carlill purchased the smokeball, but she still got influenza. Then she sued the company. The Court decided plaintiff won the case.

Apply to fact
In this case, The Andersons wants to find a company to repair their property, and after looked the building, Humphrey Plank gives their quote (offer). Then The Andersons received the quote and accepted (acceptance), this is an agreement. Humphrey Plank as a builder are doing business with The Andersons, it can be said they are commercial in Nature. Also, this is an appropriate presumption that the parties are both intended the agreement becomes a contract, and they are doing business. In the mail document, it is said “while care is taken to ensure costs are kept under the figures quoted above” (Phillippa & Martin, 2006), and because of this quote, The Andersons purchased the property. This circumstance is similar to Carlill v Carbolic Smokeball Co [1893].
In this case, I think The Andersons and Humphrey intend to create an enforceable contract, Humphrey has obligation to do the renovation work and The Andersons only need to pay $165,000 to Humphrey.

Part two: offer and acceptance

Has a contract been formed between The Andersons and Premier Renovation?
Relevant law:
Offer can be a sign, statement or action that someone wants to join a legal contractual relationship if the promise of the person (he/ she) is accepted.
Acceptance can be a sign, statement, or action that can show the person’s intention to be legally bound by the terms of offer.
Offer + acceptance = contract
The statements and actions which give information in response to a query are not offers. The relevant case authority is Harvey v Facey [1893], Harvey wants to by pens from Facey and telegrams to ask, then Facey gives the price of the pen. After Harcy accepts the seller refuses. The result of this case is no contract between these two parties.
Statement of intention, this statement is the parties broadcast that they decided to buy, sell or deal. This kind of statement is not offers, because there is no intention. It has not any binding or legal significance. Case authority: Harris v Nickerson[1873].
Invitation to treat, this kind of statement is to encourage or entice offers; it only shows the willing of the party to start the offer and acceptance. However, advertisement as an invitation to treat is not offer to sell. Case authority: Pharmaceutical Society of Great Britain v Boots Cash Chemists Led [1953].
A counter-offer has two requirements, 1) it need an express or implied rejection to the existing offer, and 2)a introduction of the replacement offer, because the original offer is ended when it is rejected. The relevant case is Hyde v Wrench [1840], Wrench offered to sell something to Hyde for 1000. After two days Hyde made a new offer to buy for 950. Wrench refused. Then Hyde said he will pay 1000. Wrench considered there is no contract between two parties, and then Hyde sued. The result of Court was Wrench won.
Communication of the offer, the offer has to be communicated between offeror and offeree. Terms of offer, it is also need be communicated between parties that all terms that make up the offer. Case authority: the Moorcock[1889]
Apply to the fact:
1 Sept, Simon phoned to Premier Renovation when he saw the advertisement on the yellow pages, and the assistant posted a brochure about the company’s information. Then Simon phoned back for more details. In this circumstance, I think there is no offer and acceptance, because giving information in response to a query cannot be an offer, and also advertisement is also not an offer.
3 Sept, the Andersons arrange to meet the director of the company Frank Fabel to ask more details. There is no offer and acceptance, only supply information.
14 Sept, after looking the property, Frank told The Andersons the cost will be $205,000, and the cost includes labor, materials taxes etc. and he said he can start the work on 1st October. But Simon told Frank they only can cost $200,000 for the renovation, and then Frank disagreed. In this day in my opinion there is a counter offer, Frank gave an offer for renovation $205,000, and Simon gave an other offer $200,000, that means he express or implied rejected the offer which Frank gave. Then he gave a replacement offer, if Frank accepted the replacement offer, the contract will be made, in fact, Frank rejected. A counter-offer cannot be an acceptance, so there is no acceptance.
15-20 Sept, The Andersons went to see other companies and no quote is suitable. In these days there is no offer and acceptance, only inquiries that cannot be acceptance or offer.
21 Sept, The Andersons went back and told Frank they will pay $205,000 and they wanted the work can be done by 1st December 2011. In this situation, there is an offer made by The Andersons. However Frank refused. So there is no acceptance and no contract.
29 Sept, Frank told The Andersons he decided to do the work. This is a new offer made by Frank, not an acceptance for the offer that Andersons gave in 21 Sept, because the offer by The Andersons in 21 Sept was refused, the offer was ended. And The Andersons did not give reversion. So there is no acceptance.
There is no contract between the Andersons and Premier Renovation, because making a contract should have both offer and acceptance, but in this case, there is no offer and acceptance occurs at the same time.

Part three: consent

A)     Issue:
Whether Regency Revitalisation Ltd’s action is misrepresentation?
Relevant law:
There are five characters to prove whether the issue is misrepresentation,
Ø  A false statement of fact
Ø  The fact made before or at the time that the contract is made
Ø  The fact made by one party to another
Ø  It does not become a term of contract
Ø  Persuading party enters into contract and the party need to rely it.
Puff, terms and representations are three kinds of statement. Puff is an enticement, flattery and exaggeration statement which has no legal significance. Representation is an effective statement which can persuade a party enters into a contract.
A puff is not regarded as a fact- Advertisement, statement of praise and recommendation are not actionable at common law, because any sensible person would not believe that. However, today, the Fair Trading Act 1986 misleading conduct is outlaw, it include advertisements.
A false statement of fact, this fact relate to something which is existing or already occurred. About future (promise) is not a fact. Relevant case is Ware v Johnson (1984), the plaintiffs purchased a kiwifruit orchard in 1980, and the seller said the first crop of the kiwifruit vines will in May 1982 which the seller had planted in 1605. However, the vines failed in 1980/81, the buyer was loss of the plants, and the reason is seller used wrong herbicide. So plaintiffs sued for damages. It was considered misrepresentation.
Apply to fact:
In this case, at the begin Maurice told the Andersons he had been in the industry for 45 years and the company had not had a single dissatisfied customer, also, he showed a number of testimonials. In fact, after Simon’s investigation, The Andersons is the first customer and the testimonials are spurious which from the Maurice’s pub friends. For the advertisement, Simon found this company has two qualities that he felt important, competitive and professional. So the Simon and Rebecca signed the contract. The above information from Maurice is a false statement of fact; the fact is about passed and existing.
According to the five characters of misrepresentation, that circumstance is a false statement of fact is made before the contract is made, the contract is made by The Andersons and Regency Revitalisation Ltd, and the above things are not become a terms of contract. Also those things are Regency Revitalisation Ltd induces The Andersons to enter into a contract.
Regency Revitalisation Ltd’s act is a fraudulent action. It is a misrepresentation because we can prove all information from Regency Revitalisation Ltd is untrue. Simon and Rebecca can sue Regency Revitalisation Ltd.
B)     Issue:
Are there any remedies for The Andersons?
Relevant law:
The Contractual Remedies Act 1979 refers to two kinds of misrepresentation- Fraudulent and innocent in section 6 damages for misrepresentation and section 7 cancellation of contract. Fraudulent means the statement is made untrue or dishonest; normally Fraud is hard to be proved. Innocent means the party who real believes that the other party said was true, but the statement is incorrect.
In the text book, for remedies, if the following are satisfied Section7 (4), Section7 (5) and Section9 that will be considered cancellation; and if cannot cancel under Section7 (4) and Section7 (5), that will not elect to cancel.
Apply to fact:
In the above conclusion, the action of the Regency Revitalisation Ltd is misrepresentation. According to the Contractual Remedies Act 1979, Simon and Rebecca are innocent. They honestly believe that what the Regency Revitalisation Ltd said, and it led Simon and Rebecca signed the contract. The circumstance is like Section 7(3) (a), “has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract”.
If want to cancellation, it should be satisfied Section7 (4), Section7 (5) and Section9. If cannot cancel under Section7 (4) and Section7 (5) that the Andersons can sue for damage.
In Section7 (4) (a) and Section7 (4) (b) - the parties agreed the truth of the representation no matter expressly or impliedly, and the effect of the misrepresentation is substantially reducing the benefit, or increasing the burden, or change the benefit or burden to the cancelling party; and in Section 5- the parties cannot cancel the contract when the parties has affirmed the contract.
In this case, if the contract is cancelled that will bring loss to the Andersons, so the contract cannot be cancelled.
Through analyzing the fact, I think Regency Revitalisation Ltd can be sued by Simon and Rebecca for damage for misrepresentation, and Regency Revitalisation Ltd requires cancelling the contract, he need pay remedy to Simon and Rebecca.

Part four: capacity

Do Todd and Amy make an enforceable contract with Simon and Rebecca? Can they avoid the contract?
Relevant law:
Capacity is the ability to do some legal effect actions, in law of contract; it means the ability to make a valid contract.
Section2 of Minors Contracts’ Act 1969 defined minor is a person who has not attained the age of 18 years. Section15 (2), the Act applies only to contract made by minors; the Act also applies to all contracts made by minors including those made for cash or credit consideration.
In general rules, there are 3 kinds of people who do not have the legal capacity to enter into valid contracts:
Ø  People who do not have the mental capacity to understand what a contract is.
Ø  People who do not understand what they are agreeing to be because they are under the influence of alcohol or drunks.
Ø  People who are under 18 years of age.
The time for making contract is the important time for classifying minors under the Minors Contracts’ Act.
Contract enforceable unless harsh or unconscionable, in Section5 (1), the example is life insurance and contracts of service (employment); and contracts unenforceable unless fair and reasonable, Section6 (3) - determined whether the contract is fair and reasonable the Count can take into account.
In Section9, Contracts enforceable as if of full age.
Remedies in Section6 (2), if the contract is fair and reasonable that Court can discretion to: enforce the contract and declare the contract binding on the minor, other party entitle cancel the contract and can order compensation or restitution; if the contract is unfair and unreasonable that Court can discretion to: cancel the contract, minor entitle to cancel the contract and can order compensation or restitution.
Case authority: Morrow & Benjamin Ltd v Whittington [1989], in this case, it said ‘fair and reasonable’ means the contract have to meet two conditions, it must be both fair and reason.
Apply to fact:
This is an enforceable contract between the Andersons and Todd, but not with Amy. The Andersons make an offer, Todd and Amy accepted. The reason why Amy is not entering into a valid contract is according to Minors contracts’ Act 1969, minor is a person who has not attained the age of 18 years, and in this circumstance, the payment that the Andersons pay is unfair and unreasonable, and then they want to get out of the contract.
The contract, the Rebecca’s quote is $2200, but the materials need to cost $1700, only $500 will be paid to Todd and Amy of their work over six weeks, obviously, it was unreasonable and unfair. In Section5 (1), the example is life insurance and contracts of service (employment), Todd and Amy are not employees with Simon and Rebecca.
However, with Minors contracts’ Act 1969, even though Todd and Amy in the same environment, Todd is 18 years, he is not minor, so he cannot get out the contract when he thinks the contract is unfair and unreasonable after he signs the contract. Contract enforceable as if of full age- Section9. Amy can get out the contract if the Count considers the contract is unfair and unreasonable, Count has the right to cancel the contract.
In this case, because of the minor problem, although Todd and Amy sign a valid contract with Rebecca, Amy is only 16 years as a minor, according to remedies Section6 (2), so she can avoid the contract, Todd is 18 years, he is not a minor, so he cannot avoid and he need to enforce the contract with Rebecca.

Part five: consideration

Is there a valid consideration between Simon and Fantabulous Foliage, does Simon need to pay $450 to Fantabulous Foliage? Is there a consideration between Simon and Landscape Architects Ltd, should Simon need to pay the additional payment?
Relevant law:
As simple agreement, if no consideration, it has no contact. If it has consideration and other elements, a contract will be made.
Consideration, one party provides a promise or action or property, and the recipient has also to do something or provide something in return, that will be a consideration.
Executory consideration consist of a promise to pay, supply, perform or forgo, these things are future action. Executed consideration consists of completed action. Both act and promise in terms of consideration can support a contract, these two has no differentiate.
Past consideration, something has already happened, after it happened, a subsequent promise to pay for it is unenforceable. There are two exceptions of “past consideration is no consideration”: (1) because of the special value of such instrument, past consideration will support payment on a negotiable instrument, such as cheque; (2)if services of a business nature were rendered at a person’s request, this is a sufficient consideration to support a later promise to pay. The case authority: McArdle, Re [1951]
Apply to fact:
At the beginning, Simon asks Landscape Architects and Fantabulous Foliage to design a garden plan and give a quote, these two firms are both give a plan to Simon and after Simon’s thinking, and he decided to use the plan from Landscape Architects. In this time, there is no action or promise or property, so on consideration is made.
After Fantabulous Foliage Ltd knew Simon’s decision, the firm required Simon to pay $450 drawing up the plan fee. In this circumstance, as a consideration, Fantabulous Foliage gives an action, Simon should also give an action or promise or property in return, that the consideration will be valid. However, in fact, Simon did not do anything. Besides, the plan is already made, a subsequent promise (the drawing up fee) to pay for it is unenforceable. Past consideration is no consideration.
With Landscape Architects Ltd, the firm completed the work on time, and both parties are satisfaction. After that Simon and Landscape Architects Ltd have a negotiation that Simon only need to pay $8000, and Simon promises that he will pay $4000 immediately and another $4000 will be paid in two month time, and Landscape Architects Ltd agreed they do not require the additional $700. There is an exception to the rule “past consideration is no consideration”, that is past consideration will support payment on a negotiable instrument, because the instrument has a special value. With this reason, there is a consideration between Landscape Architects Ltd and Simon.
In this case, since there is no consideration between Simon and Fantabulous Foliage Ltd, so Simon does not need to pay $450 for Fantabulous Foliage Ltd. Because Simon has negotiation with Landscape Architects Ltd, and Landscape Architects Ltd agreed the result- they will not required the additional payment. So there is a consideration between Simon and Landscape Architects Ltd, Simon does not need to pay the additional payment.
Part six: discharge
Issue: can Rebecca and Simon release from these contracts?
a) Relevant law:
Discharge by performance, the terms of contract are complied with the parties keep their promise and do what they have set out to do. Indivisible contract, it means it must be fully completed and to the letter to amount to a discharge. Case authority:  Bolton v Mahadeva [1972]
If the most performance is completed, discharge has occurred, and the payment cannot be refused. It can through the quantity of completion to pay and deduct what did not finish. The case authority: Hoenig v Isaacs [1952]
Apply to fact:
In this circumstance, there is a 12 month contract between Simon and the gardening firm. In the contract, the firm was required to mow the lawn, trim the edges and remove all garden rubbish. If fact the firm did perform the contract well, the lawns were not mowed. Since this reason, Simon want discharge this contract to save his money. The company did not do what they have set out to do, it can be consider the company failure to complete obligations.
In this case, since the gardening firm did not perform their obligation well, and did not complete the work. Simon entitles to release the contract.
b) Relevant law:
Impossibility or frustration occur (1) an external event; (2) the parties are not finish to a contract; (3) the contract becomes impossible to perform or performance is made very different and difficult.
A doctrine of the Count considers said that when a legal frustration happens, the contract is discharge.
Apply to fact:
In this circumstance, a contract made between catering firm and the Andersons, the firm provide premium frozen desserts and Rebecca agree to purchases 60 on the first day of each two month period for 24 months.
At the beginning, the Andersons have a large storage freezer to keep their desserts. However, later the health authorities required the Andersons need to use a commercial grade freezer, but in fact, the Andersons have not enough money to buy a new one which achieves the authorities’ standard.
This is a frustrated event, with Count Doctrine, when legal frustration happens, the contract is discharged.
I think in this case, Simon and Rebecca can release the contract, because the change of health authorities belongs to a frustration event, they are impossible to afford a new freezer. According to the law and case authority, the contract can be discharged.
Case authority:  Rayneon NZ Ltd v Fraser [1940]
C) Relevant law:
There are three parts to discharge by agreement:
Ø  There are some terms of contract described it own discharge.
Ø  The contract is still executory or not beginning at the time of the agreement to discharge.
Ø  One of parties who have performed or partly performed can agree to release the other party
Conditions subsequent, this is a term or clause in the end of contract, and if the specified events occur or fail, the condition subsequent will be occurred.
Agreement to release; accord and satisfaction. If under the contract, one party get some or all benefits of other party’s performance and the other agrees to release the recipient’s require, then the agreement is released.
Apply to fact:
In this circumstance, Acorn Linen supply laundered and starched linen to the Andersons each week, and in the contract, there is a clause said, after Simon and Rebecca use the service for three months, if they want to discontinue the contract, they just need pay $100 discontinuation fee and in this process, both parties can be satisfied.
In the case, it has a clear clause to provide for own discharge. So if Rebecca and Simon wish to release the contract, they only need to perform the clause in the contract- pay $100.

Part seven: remedies

What kinds of remedies that Simon and Rebecca can against Heaven Scent Plumbing?
Relevant law:
These damages appropriate remedies –Contractual Remedies Act Section6.
a) Low quality tap fittings were supplied. If a person breach a contract, he/she is liable for: (1) those losses which one would expect to occur; (2) those losses have been in the contemplation for the parties. Case authority: Hadley v Baxendale[1954] & Victoria Laundry (Windsor) Ltd v Newman Industries Ltd[1949]

b) Pipes burst that two rooms were water damaged. Mitigate, when a party has losses by reasons of other party breach, the party should do something to minimise the losses. Case authority: Brace v Calder [1895] many property need to replace, the cost is not assessment. Case authority: Chaplin v Hicksp[1911]
c) Kitchen’ tile’s pattern cannot identical. The losses which can be expect to occur. Case authority: Hadley v Baxendale[1854] The losses assessment cannot be a bar to an award; the Court must ensure or fix the amount it considers appropriate. Case authority: Chaplin v Hicksp[1911]
Apply to fact:
a) In this event, the quality of tap fitting that Heaven Scent Plumbing Ltd supply is lower than the standard in the contract. The value of the tap fitting cost is also low than the standard one, that is the loss Simon and Rebecca suffered.
b) Since the pipes burst and water spilled out, it makes damage. In this process, Rebecca gets a plumber out to stem the flow, this action minimise the loss. There are two damaged and some expensive stuff had to replace, also, Simon and Rebecca pay the fee that the guests’ whose rooms were effected to other local motel. All of these costs cannot be assessed.
c) For replace the plumber in the kitchen, some of tiles should be removing. In the removal process, there are three imported tiles were broken and these tiles’ cannot buy because these tiles are “end-of-line” stock, there are no more can buy. With this reason, Simon and Rebecca need to make an entire and new pattern tiles. This action is can be expected and the cost of make new tiles cannot be assessed.
In this circumstance, Simon and Rebecca can sue Heaven Scent Plumbing Ltd for damage (remoteness of loss, mitigation and assessment). Because in this case, since the workmanship problems from Heaven Scent Plumbing Ltd, the firm need have an obligation to compensate to Simon and Rebecca.

For more theory and case studies on:


Phillippa, G. B., & Martin, L. M. (2006). Understanding Commercial Law. Wellington Lexis NZ Ltd.
Bolton v Mahadeva [1972] 2 ALL ER 1322 (EA)
Brace v Calder [1895] 2 QB 253; [1895-9] ALL ER Rep 1196
Carlill v Carbolic Smokeball Co [1893] 1 QB  256; [1981-4] ALL ER Rep 127
3.4.7, 5.2.4, 5.2.5, 5.3.1, 5.3.2
Chaplin v Hicksp[1911] 2KB 786 (CA)
Hadley v Baxendale[1954] 9 Exch 341; 156 ER 145
Harris v Nickerson [1873] LR 8 QB 286
Harvey v Facey [1893] AC 552 (PC)
Hoenig v Isaacs [1952] 2 ALL ER 176 (CA)
Hyde v Wrench [1840] 3Beav 334; 49 ER 132
McArdle, Re [1951] Ch 669; [1951] 1 ALL ER 905
Morrow & Benjamin Ltd v Whittington [1989] 3 NZLR 122
Pharmaceutical Society of Great Britain v Boots Cash Chemists Led [1953]. 1 QB 401; [1953] 1 ALL ER 482 (CA)
Rayneon NZ Ltd v Fraser [1940] NZLR 825
The Moorcock[1889] 14 PD 64
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd[1949] 2 KB 528; [1949] 1 ALL ER 997 (CA)
Ware v Johnson (1984) 2 NZLR 518
Contractual Remedies Act 1979
Fair Trading Act 1986
Minors Contracts’ Act 1969

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