Detailed Case Study: Contract Law Principles in Business Agreements

This case study delves into several contract law issues arising from different business scenarios. The first scenario examines whether a binding contract was formed between Donna and Cam regarding accounting software, concluding that no legally binding contract existed due to the informal nature of the conversation and the offer being an invitation to treat. The second issue addresses whether Harvey and Louis were contractually bound to pay a delay fee at Flash Fort, determining that they were not liable as they were not adequately informed of the terms before entering the contract. Finally, the case study considers whether Donna, Harvey, and Louis were liable to pay an extra $220 for carpet cleaning services, concluding that they were not obligated to pay the additional costs as the contract was finalized at the initial price, and the company could not unilaterally change the terms due to increased chemical costs. Desklib offers more solved assignments and past papers for students.

Contract Law
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Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................4
Answer 3....................................................................................................................................6
References..................................................................................................................................9
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Answer 1
Donna and others decided to purchase the latest and best accounting software in order to offer
their clients with the most efficient and sophisticated services. The task to find suitable
software was given to Donna. Donna visited a specialist IT company named Number
Crunchers and spoke with Cam who was one of the sales staff. On the basis of requirements
of the new firm, Cam recommended the ‘MoneyMakers’ corporate accounting software
package which included 24/7 IT support. However, the package she offered was advertised
on the website of the company at $15,649, Donna asked her to check with other partners in
order to take their consent. She left her mail address and phone number with Cam and told
her to call her within next two days.
After the other two agreed on the package and told Donna to go ahead and order the software.
The contact between Donna and Cam occurred through text conversation in which, Cam
offered a special deal of $14,300 under catalogue sale, to which Donna agreed.
Issue: Was there a binding contract between Donna and Cam for the purchase of the
software.
Law: There are four components of a legally binding contract which are offer and
acceptance, consideration, intention to create legal relations and completeness of terms. The
offer should be in writing, oral or implied through conduct. The contracts are of two types i.e.
unilateral or bilateral. The bilateral contract requires the acceptance by communication
discussed shortly by the party accepting the contract.
The offers should not be confused with ‘Invitation to treat’ as in Australian Woollen Mills
Pty. Ltd. v. The Commonwealth [1954] HCA 20, the court held that making a statement on
government policy could not be considered as a legally binding contract (Austlii, 2018).
Application: It was just an offer presented by Cam before Donna, on which she agreed in her
text conversation. Furthermore, it was a kind of invitation of treat, in which Cam was
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introducing her to the Catalogue sale and discounts due to it. Donna just agreed and it cannot
create legally binding contract between the two, because it was just a statement in that regard.
Conclusion: No, there is no existence of legally binding contract as it was an informal
conversation between the two in which, Cam offered discounted offers regarding the
software.
Answer 2
Issue: Were Harvey and Louis contractually bound to pay the delay fee to Flash Fort.
Facts: When Louis and Harvey went to Flash Fort for fun games, the entrance was dark with
only fluorescent lights illuminating the surroundings. When they approached the counter,
they were told to write their names and follow certain safety instructions before paying and
suit up for the session. The full terms of participation were on the other side of the entrance
labelled with orange sign as ‘Mission Rules’. Being informed by the staff member, they did
not sign anything and they were asked to hurry, as the session started as soon as they had paid
and had safety briefing. Before they could look around and spot the sign, they heard the
countdown siren which indicated that the session was about to start. However, the font size
and colour of the sign was sufficiently clear to be read, they commenced their one-hour
session (Case Briefs, 2018).
Law: In case of breach of contract, the injured party is entitled to seek damages but breach
must be proved by the injured party. In case of formation of contract, when an offer is made
and it is accepted by the other party with an intention to enter into a legally binding contract,
the formation of contract takes place.
The breach of terms of contract leads to compensation to the injured party but, the loss must
not be too remote. In the contract, the terms and conditions of the contract must be clearly
visible and the party to the contract must be informed about the same. The terms of contract
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matter and it can be in express terms, implied terms or in associated rules of interpretation.
However, contracts of significance are in writing and signed by both the parties known as
express terms, terms can also be mentioned through various ways of communications such as
through letters, mails, phone calls and such others and could also be contained in websites or
sign boards on entrances.
The party to the contract is considered as bound to the terms and conditions included in the
contractual agreement, if they have signed the contract regardless of whether they have read
or understood the terms mentioned in the contract or not. In case of L’Estrange v F Graucob
Ltd [1934] 2 KB 394, the court held that the party is considered to be as bound to the terms
and conditions of the contract if they have signed the contract (Ball, 2018).
In the incorporation of terms by notice, the party to the contract not relying on the signed
written contract while dealing with the customers, might incorporate terms governing the
transaction through notice or sign boards at the entrance. However, the incorporation of the
terms depends on two factors i.e. if the displayed or delivered terms are available to the party
being made to bind to the contract and, whether reasonable steps have been taken to bring the
terms of the contract to the notice or consideration of the party being made to bind to the
contract. In this context, the party to the contract must have actual knowledge or notice of the
terms of the contract.
Furthermore, time also matters a lot as in case of Oceanic Sun Line Special Shipping Co Inc v
Fay (1988) 165 CLR 197, the terms being made available to the party prior to the contract
being made could bind the party to the contract (Australian Contract Law, 2018). The terms
being informed to the party after formation of contract could not be binding as in case of
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 (Uganda Christian University Law
Library, 2016).
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Application: The terms of the contract were placed at the opposite side of the entrance.
When Louis and Harvey asked the staff member, they were told not to sign anything and all
the instruction were placed on the wall and they were informed that the session was going to
start as soon as they paid and had safety briefing, so they should hurry and do not waste time.
However, the sign board was visible enough to look at it, but both of them were not provided
with sufficient time to go through it. As soon as they paid the fee and had safety briefing,
they were to enter the session hurriedly. If there were terms related to delay fee, the
customers must be informed specifically about it before entering into the contract or before
paying any consideration for entering into the contract.
First of all, in case of delay fee terms, the party to the contract must be informed much before
entering into the contract or at the time of the contract formation otherwise, party cannot be
held liable to bind to the contract and could not be bound to pay delay fee when they have not
been informed about the same. Secondly, there was not enough time with them to look at the
terms on the opposite side of the entrance, and there was not enough time between the start of
session and payment of fees. So, Harvey and Louis were not able to go through the terms as
they were required to enter the session.
Conclusion: Harvey and Louis cannot be held liable to pay the delay fee to the Flash Fort as
they were not informed about the relevant term before or at the time of entering into the
contract and even afterwards, they were not provided with sufficient time to go through the
terms. So, they cannot be held liable to pay delay fee.
Answer 3
Issue: Were Donna, Harvey and Louis liable to pay the extra $220 for the carpet cleaning.
Law: In the formation of contract, the elements of contract are considered to as highly
significant. The offer and acceptance by the parties to the contract are considered to be of
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value, when consideration takes place in return of the promise in order to make the contract
legally binding. The consideration is essentially any kind of exchange between the parties to
the agreement, which might involve money, goods or services. It also means that something
of significant value should be given by each party to the contract so that any kind of loss
could be incurred to each of the party in case of breach of contract.
However, when the promises are sealed and signed between the parties, there is often not any
requirement of consideration and the promises can be made enforceable even without
consideration. The consideration should exist in contract with offer and acceptance with the
legal intention of the parties to the contract.
There are two elements of consideration which are benefits or detriment and bargain. The
valuable consideration, from the point of view of law, should consist some right, interest,
benefits accruing to one party, or some forbearance, detriment, loss or responsibility, given,
suffered, or undertaken by the other as in case of Currie v Misa (1875) LR 10 Ex 153 (Legal
Secretary Journal, 2016). Bargain means an act or forbearance of one party or the promise is
the price for which, the promise of the other is bought and promise in this manner given for
value is enforceable (ACCC, 2018).
There are three requirements of consideration which are sufficiency, currency or past
consideration rule and the movement from the promisee. The consideration must have
sufficient legal value but need not be adequate i.e. fair price. Something given before a
promise is made, cannot be considered as good consideration for the promise and unless the
services are performed at the request of promisor and, promisor later promises to pay for the
services. The consideration must move from the promise which means that the consideration
stipulated by the promisor must be provided by the promise and it need not to move to the
promisor (Small Business Development Corporation, 2018).
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Application: Donna, Harvey and Louis hired a cleaning company named Reynolds
Contractors Pty Ltd. to shampoo and clean the carpet throughout the building, the following
week. The company visited the building and quoted the job for $1800 and agreed to complete
the job within next two weeks. They paid the fee completely after which, the representative
of the company indicated that the price of the chemical required for the treatment of carpets
has increased, for which, they will have to pay additional costs of $220 before they could
proceed. Donna agreed to pay the sum but after the completion of work denied to pay the
additional amount.
First of all, the contract was initially formed between them at the cost provided by the
contractors in quotations, for which, Donna paid the entire amount in advance. Once when
the contract gets finalized between two parties, terms of contract or fees cannot be changed
with the increase of costs of anything. The terms of the contract are required to be followed
from the date of initiation of contract and it cannot change with the changes in costs in the
market. The initial contract was signed after visiting the building and just before providing
the services associated with the contract, the party cannot demand more fees even if they
have to bear the loss. So, Donna, Harvey and Louis cannot be held liable to pay the extra
costs as they signed the contract at initial costs and it is not their fault if cost of the chemical
increases. It is the duty of the company to provide its services as per the costs decided.
Conclusion: Donna, Harvey and Louis cannot be held liable to pay the extra $220 for the
carpet cleaning because they have entered into contract at initial costs decided by the
company and, increasing costs of chemical is the liability of the company and not the
contracting party.
References
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ACCC, 2018. Contracts & agreements. [Online] Available at:
https://www.accc.gov.au/consumers/contracts-agreements [Accessed 19 September 2018].
Austlii, 2018. Case Notes. [Online] Available at:
http://classic.austlii.edu.au/au/journals/ResJud/1957/10.pdf [Accessed 19 September 2018].
Australian Contract Law, 2018. Australian contract and consumer law. [Online] Available at:
https://www.australiancontractlaw.com/ [Accessed 19 September 2018].
Ball, J., 2018. L’Estrange v Graucob [1934]. [Online] Available at:
https://webstroke.co.uk/law/cases/lestrange-v-graucob-1934 [Accessed 19 September 2018].
Case Briefs, 2018. Hadley v. Baxendale. [Online] Available at:
https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-farnsworth/remedies-for-
breach/hadley-v-baxendale/ [Accessed 19 September 2018].
Legal Secretary Journal, 2016. The Importance of Currie v. Misa in Contract Law. [Online]
Available at:
https://www.legalsecretaryjournal.com/The_Importance_of_Currie_v._Misa_in_Contract_La
w [Accessed 19 September 2018].
Small Business Development Corporation, 2018. Contracts and agreement. [Online]
Available at: https://www.smallbusiness.wa.gov.au/business-advice/legal-essentials/
contracts-and-agreements [Accessed 19 September 2018].
Uganda Christian University Law Library, 2016. Thornton v Shoe Lane Parking Ltd [1971] 2
QB 163. [Online] Available at:
https://uculawlib.files.wordpress.com/2016/09/thornton_v_shoe_lane_parking_ltd_-
_1971_1_-1.pdf [Accessed 19 September 2018].
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