Contractual Obligations and Breaches

The assignment content discusses contract law in Australia, specifically the cases of Motorbikes Pty Ltd and Cakes Pty Ltd. In the first case, John may choose to affirm the contract and claim damages for the breach or terminate the contract and claim full loss of bargain damages. The presence of essential terms and the difficulty of proving oral agreement are key factors. In the second case, George is bound by the contract he signed with Cakes Pty Ltd, as there is no evidence of improper persuasion, false statement, threats, or coercion. The contract is enforceable and legally binding, and George must have had the legal ability to form a contract. Both cases highlight the importance of contractual intention, capacity to contract, and the presence of essential terms.

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Contract law or rules are the conventional rules governing the validity, content, and the
relationship of an agreement between two or more companies, institution or individuals. In most
cases in the areas of provision of services, the sale of goods or the exchange of ownership or
interests AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454. It is the law that governs what
happens when the contract breaks down and establishes the terms of an agreement in the event of
a dispute. For this paper, two questions are to be addressed. Besides, the paper seeks to use the
IRAC method (Issue, Rule, Application, and Conclusion) in answering the two question.
QUESTION 1.
Is Motorbikes Pty Ltd bound by the contract? Provide reasons for your answer. You
must cite relevant Australian case law and the Corporations Act 2001 (Cth)
Issue
In this instance of Motorbikes Pty Ltd and John, it is clear that there is a problem with the
contract involving the parties. John who is the owner of the motorbike approaches Tim who is
the secretary of the company which they own with Michelle. Tim agreed to pay $ 5000 for the
motorbike, and after the agreement, he and Michelle sign the contract to purchase the motorbike.
Later Michelle who had signed the contract want to get out of the contract thinking that they had
paid much for the motorbike. Therefore from the above case could Michelle be breaching the
contract (Corporations Act 2001 (Cth)?
Law
As defined in the introduction, a contract is said to be an agreement between two or more
parties which is legally enforceable. In our case, we have the parties as Michelle and Tim who
are the Motorbike Pty Ltd owners and John, the motorbike owner. Also, both sides assume a

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legal obligation which they must complete. When one party to the contract fails to perform the
legal obligation it has agreed to, legal issues involving contracts arise. In cases where a party
breaches a contract, the other party can sue on the basis of money damage or may plead with the
court to request the other party to honor the promise. When the contracts are not written clearly,
they become a source of legal disputes (AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454).
Various terms are frequently used when solving issued related to Contract law.
They include:
Contract. According to the Australian Contact Law, it is termed
as an agreement between two or more parties that builds in each party obligation to do
something or not do it, and the right to performance of the other party’s obligation or a solution
in case a breach arises (Scammell v Ousten [1941] AC 251).
Offer. A proposal for a contract that another party may agree upon the recipient to form a
contract which is legally binding.
Acceptance. An approval of an offer of a contract which is legally binding. It is required to be
written.
Breach. Breach of contract is the act of not performing a duty or obligation created by contract
or a promise without justification.
The statute of frauds. A law of a state that prohibits enforcement of certain contracts unless
they are in writing.
Performance. The action or omission needed to fulfill a promise or duty.

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Also, the contract law is discussed in Corporation Act 2001 (Cth) which regulates
corporations and financial services and products in Australia. The Act consists of 6 volumes. The
Act set out laws which deal with business entities in interstate and federal level in Australia.
Application
In the case of Motorbikes Pty Ltd and John, Michelle who is a party to the contract wishes to
terminate the contract. Michelle is one of the owners of Motorbikes Pty Ltd, and the company
director is bound to the contract so do the company. The fact that both company owners signed
the deal during the purchasing of John's motorbike makes the company bound by the contract.
If the parties wish to terminate the contract or modify the contract, it is required of them to agree
to the termination or modification. The right to terminate a contract law a rise in three instances.
 The renunciation or repudiation of the agreement by either party
 A satisfactorily serious breach of a non-essential term
 A violation of a crucial term
In our case, if the right to terminate the contract arises John will decide whether to affirm the
contract and claim damages for the breach or he may terminate the contract and claim full loss of
bargain damages. Motorbikes Pty Ltd also should justify the termination on the basis that they
have a legal right to do so and whether they were aware or not at the time of contract signing. As
seen in the case of Frumar v Guilfoyle Developments Pty Limited (2014) NSWCA 225. An
important factor in defining whether parties to contract to have the intention of being bound
immediately by a variation to a contract is the presence of essential by one of the parties to a
speedy agreement to another variation (Crown v Clarke (1927) 40 CLR 227). The difficulty of
proving oral agreement is also illustrated in this case.

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Conclusion
From the above analysis, Michelle who is one of the company owners had signed the contract.
These meant Michelle had agreed to the terms of the contract. For Michelle later wanting to get
out of the contract does not make the Motorbikes Pty Ltd not a party in the contract. Therefore
Motorbikes Pty Ltd is bound by the contract.
QUESTION 2
Is George bound by the contract? Provide reasons for your answer. You must cite relevant
Australian case law and the Corporations Act 2001 (Cth).
Issue
In this case, George is the owner of the cake shop in which Gerard and Sylvia wish to
buy. They have also registered the company as Cakes Pty Ltd. During the contract signing, the
seal which is stamped is for the company which means that George is with a contract with Cakes
Pty Ltd. Sylvia and Gerard are witnesses to the contract signing. The issue, in this case, is that
George wants the cake shop back, but he had signed the contract to sell it. From the case above is
George breaching the contract (Crown v Clarke (1927) 40 CLR 227)?
LAW
A contract is simply an agreement to do or not to do something. The contract should be
enforceable and legally binding for it to be valid. The agreement also should be outlined to

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prevent disputes. In our case, George who had signed the contract to sell the cake shop want it
back after he thinks it was a bad idea to sell the cake shop. He now seeks to terminate the
contract. For George to be bound by the contract, he must have the legal ability to form a
contract. This is known as the capacity to contract. Also improper persuasion, false statement,
threats, and coercion should not have been used to force George to sign the contract (Balfour v
Balfour [1919] 2 KB 571).
Both parties, in this case, George and Cakes Pty Ltd must have made a mistake on the
core assumption on which the contract is based on to cancel a contract for a mistake. Also,
George must not have contractually assumed the error or the risk. It also important to that a
person who signs a contract is presumed to understand it is bound to its terms.
Application
George having signed the contract during the selling of the cake shop is bound by the
contract. By signing meant that he was acutely aware of the term the agreement. Also, there is
no evidence telling us that there was improper persuasion, false statement, threats or coercion by
either Gerard or Sylvia to force George to sign the contract. Also in our case there no evidence
which might show us that there was a mistake in the basic assumption on which the contract is
based for the contract to be canceled. Therefore George is presumed to have understood the
contract, and he is bound by the contract. As seen in the case of ABN Amro Bank NV v Bathurst
Regional Council (2014) FCAFC 65. ABN Amro promised to a financial product with certain
features for Local Government Financial Services Pty Ltd. What the Federal Court considered
was if the term should have been implied by s 12ED of the Australian Securities and Investments
Commission Act 2001 (Cth) (ASIC Act) which required ABN Amro to come up with a note

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having a degree of security commensurate with an AAA rating (Beaton v McDivitt (1987) 13
NSWLR 162).
Conclusion
In conclusion based on the fact that George agreed to sell the cake shop on free will and
went on to sign the contract, he is therefore bound by the contract. By George signing the
contract it shows that he had read and understood the terms of the contract.

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References:
Administration of PNG v Leahy
AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309
Alati v Kruger (1955) 94 CLR 216
Balfour v Balfour [1919] 2 KB 571
Beaton v McDivitt (1987) 13 NSWLR 162
Coal Cliffs Collieries Pty Ltd v Sijehama Pty Ltd (1991) NSWLR 1
Crown v Clarke (1927) 40 CLR 227
Hyde v Wrench (1840) Beav 334
Masters v Cameron (1954) 91 CLR 353
Raffles v Wichelhaus (1864) 2 H & C 906
Scammell v Ousten [1941] AC 251
Thornton v Shoe Lane Parking Ltd [1971] 1 All ER 686

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