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Contract Law

The given situation consists of contractual issues and Australia does not follow a separate codified contractual law, but principles that have been established by the common law system.[1] Improvements have been made on these basic principles by the courts of the country although the parts of it have been included in the Australian Consumer Law, 2010. In this particular essay, the researcher shall discuss in detail the contractual obligations between each of the parties and the remedies that can be claimed by them. Legal precedents shall be provided to support the conclusion of the researcher and relevant sections of statutes shall also be mentioned.

For a valid contract to exist between two parties, a few elements have been accepted as essential for the contract to be enforceable. These elements include:

A valid offer and acceptance which results in an agreement or a contract- In Smith v Hughes[2], the intention of both the parties to enter into contract jewel relations was proved in a court of law. The issue was stated to be that the contract was understood for different types of oats by the different parties, but the contract was held valid has the intention was intact. In another case of AGC (Advances Ltd) vs McWhirter[3], the requirement of any valid contract to have a legally valid offer and acceptance was discussed. In the mentioned case the plaintiff had put up his property for sale by way of an auction. The defendant had made the highest bid but was not accepted by the plaintiff as he thought that the defendant was not capable to pay the amount that had been bidden by him. A case for specific performance of contract was initiated by the defendant, but the court held that auction was not considered as a valid offer but was considered as an invitation to treat and the plaintiff had the option of accepting or refusing the invitation to treat. no valid contract had been entered into by the parties as there was no valid offer and acceptance.

A valid contract has to have consideration or exchange of monetary value- In the case of Chappell & Co Ltd v Nestlé Co Ltd[4], it was held that the consideration agreed upon by both the parties may not be of economic value, in the current case, Nestle company was running on offer in which consumers court claim a music record by submitting 3 wrappers of one particular Nestle chocolate bar and a negligible amount of money. The court held that the consideration was valid as consideration for a contract did not have economic value (the wrappers of the chocolate bars with thrown away after they were submitted), but the element of consideration has to be present to make a contract valid and enforceable.

Both the parties must have an intention to enter into legal relations- Consideration may be taken to be evidence of the fact that the intent to enter into contractual relations was present from both sides. In the case of Air Great Lakes Pty Ltd vs KS Easter (Holdings) Pty Ltd[5], an airline was given up for sale and a contract was entered into to buy the two parties. Easter Holdings refused to perform the contract later on and Air Great Lakes brought a suit against Easter Holdings for payment of damages. It was claimed that Easter Holdings did not have any intention of entering into to legal relations with Air Great Lakes, and this intention was made clear before entering into the contract. The court found such implication to be true and held that the contract was not valued as both the parties did not have the intention to enter into legal relations with each other. this case made it extremely important that both the parties should take note of the intentions that are held by the other party.

Both the parties entering into the contract must fulfil the legal requirements which make a person capable of entering into a contract- The individuals recognised by law to be ineligible of entering into contractual relations are:

  • Mental Incapacity- In the case of Gibbons v Wright[6], it was held that the contract entered into by two sisters was voidable as they did not have the mental capacity to understand the nature of the contract.
  • Intoxication- It was previously considered that voluntary intoxication could not render the contract voidable as one of the parties was under the voluntary influence of alcohol or any other intoxicant. After the case of Blomley v Ryan[7], it was held that ‘mere drunkenness’ of one of the parties would not render the contract voidable. However, when one of the parties was voluntarily intoxicated and this was known by the other party to the contract and had just taken advantage of the fact, the contract could be set aside. The facts of the case are that Ryan was 78 years old and had habit of excessive drinking. The contract was entered into you after Ryan had been drinking heavily. Blomley was aware of the fact that the other party was excessively drunk and could not understand or comprehend the conditions of the contract. He took advantage of the same and bought a farm belonging to Ryan at a price which was drastically below the market price. Specific performance of contract was not allowed by the court as it would place Ryan in a situation od irreparable loss.
  • Minor- The Infants’ Relief Act, 1874 contains the provisions with regard to the incapability of a minor to enter into contractual relations. The provisions of contract law enumerate that minors are not capable to enter into any contract and have to repay the monetary value of any item of necessity that may be supplied to him. In Nash v Inman[8], the case was between a minor and a tailor, where the tailor had supplied 13 pairs of waist-coat to the minor when necessary amount of clothing was already provided to the minor by his father. The court held that the tailor should not have entered into contractual relations with the minor as he should have known that minors when not eligible to contract. The 13 pairs of waistcoats could not be considered to be items of necessity as the father of the minor was already supplying him with all the necessary items. The contract was held void and the tailor could not claim any consideration against the contract.

In the given situation, it may be said that both the parties were willing to enter into legal relation with each other but there is absence of a valid offer and acceptance. The developer had asked the builder to quote a price for some building work, the quoted price cannot be considered to be acceptance of the offer to do the job. Also, a disclaimer has already been mentioned on the backside of the quotation sheet that the price which has been quoted may vary according to the use of materials. before entering into a valid contract both the parties should have reached a conclusion and decided on a price that was agreed on by both the parties. In the landmark case of Harvey v Facey[9], Harvey wanted to buy a property that was made by Facey and sent a telegram which stated “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”, reply to the telegram was sent quoting the lowest price. Harvey responded that he accepted the offer and wanted to go forward and purchase the property. it was held by the court that the quotation of the lowest price of the property could not be considered as a valid offer, and was an invitation to treat. Since no valid offer and acceptance had taken place, no agreement or contract had been entered into by the parties and thus, specific performance of the contract could not be done.

Although specific offer and acceptance was not entered into the acts of the parties could be considered to speak for their intentions and since an agent of the developer had called the builder and asked him to proceed with the work, and the builder acted on the direction meant that he had accepted the offer put forward by the developer. It has to be kept in mind that no consideration had been decided upon by the parties. William had no way to know if the phone call from the lady named Naomi, was actually an agent of Rhys and working as an employee in his company, or a hoax. Since she had specifically mentioned that she worked at a company that was owned by Rhys, any reasonable man would have believed that she was an agent, communicating the decision of her principal to the builder. The legal relation of an agency between a principal and an agent is not codified by the Australian law. However, presidents hold that any person who is expressly or impliedly authorised by a principal to act on his behalf inclusive of creating legal relations between the principal and any third party maybe recognised as a relationship of agency. In Peterson v Moloney[10], the plaintiff had entered into an agency and assigned the job of finding a purchaser for her house to the agent. The agent executed her assigned work and found a purchaser for the house. The purchase and made the payment for the house to the agent which in turn was not submitted to the owner. The agent subsequently became bankrupt and misappropriated the money received from the purchaser. the court held that the agent did not have the power to receive payment from the buyer on behalf of the owner, and thus it was held that the purchase money was still due and the buyer would have to pay it directly to the owner. The court also stated that it if it was found that it the agent had accepted the consideration within the knowledge of the owner, then it could be presumed that the owner had ratified the act of the agent.

Rights and Obligations of William against-

Rhys: In the landmark case of Royal British Bank v Turquand[11], it was held that when a party is entering into trade relations with a company, it shall be assumed that the internal rules of the company have been complied with as an outsider has no way of knowing or checking the same. In the same manner, William had no opportunity to check if Naomi was actually working at the company owned by Rhys or not. He did not even have any suspicion with regard to the same. It was within the obligations of William to confirm the order once with Rhys, as he had been directly approached by Rhys as a client and not by the company.

Wellbuild Pvt Ltd: William shall be eligible to claim his payment from the accounts of the company as he had been asked to initiate the construction work by an employee of the company who was acting on behalf of the company as an agent. The principles of Agency, as enshrined in the Common Law System state that the principle shall be made liable for the acts of the agent, which are done within the ambit of their duties. Thus, a claim may be filed for payment of dues against the company

James: The initial contract that was entered into by the two parties stated that James would be eligible to claim $10,000 for the work to be done by him. The subsequent change in terms which included the tool in the total consideration was a breach on contract and a suit may be filed either for the return of $10,000 or for the return of the tool, which was forcefully claimed by James. There may be a hinderance in the claim as the agreement on part of William for payment of $10.000 as well as possession of the tool gives rise to a new agreement between the two parties and both are in agreement on the new clause of the contract. This renders the old contract null and void. Thus, William may or may not be successful in claiming the tool back from James.

Thus, the rights and obligations of William towards all the parties in the given situation have been discussed.

Bibliography for Teaching Contract Vitiation in Australia

Cases

AGC (Advances Ltd) vs McWhirter, Supreme Court of NSW (1977) 1 BLR 9454

Air Great Lakes Pty Ltd vs KS Easter (Holdings) Pty Ltd, Supreme Court of NSW (1989) 2 NSWLR 309

Blomley v Ryan High Court of Australia [1956] HCA 81; (1956) 99 CLR 362 (28 March 1956)

Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 97

Gibbons v Wright (1954) 91 CLR 423

Harvey v Facey [1893] UKPC 1

Nash v Inman [1908] 2 KB 1

Smith v Hughes [1871] LR 6 QB 597

Articles

Bigwood, R., & Mullins, R. (2018). Teaching Contract Vitiation in Australia: New Challenges in Subject Design. Bond L. Rev., 30, 185.

Bigwood, R., & Mullins, R. (2018). Teaching Contract Vitiation in Australia: New Challenges in Subject Design. Bond L. Rev., 30, 185.

Catchlove, P. (2017). Smart contracts: a new era of contract use. Available at SSRN 3090226.

[1] Bigwood, R., & Mullins, R. (2018). Teaching Contract Vitiation in Australia: New Challenges in Subject Design. Bond L. Rev., 30, 185.

[2] Smith v Hughes [1871] LR 6 QB 597

[3] AGC (Advances Ltd) vs McWhirter, Supreme Court of NSW (1977) 1 BLR 9454

[4] Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 97

[5] Air Great Lakes Pty Ltd vs KS Easter (Holdings) Pty Ltd, Supreme Court of NSW (1989) 2 NSWLR 309

[6] Gibbons v Wright (1954) 91 CLR 423

[7] Blomley v Ryan High Court of Australia [1956] HCA 81; (1956) 99 CLR 362 (28 March 1956)

[8] Nash v Inman [1908] 2 KB 1

[9] Harvey v Facey [1893] UKPC 1

[10] Peterson v Moloney (1951) 84 CLR 91

[11] Royal British Bank v Turquand (1856) 6 E&B 327

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