Business Law Contracts Essay

Harry (H) who is the father of James (J) is attempting to sue J for a breach in contract and is seeking damages of $30,000 which he believes is the outstanding amount that is owed to him by J. This case touches on the fundamental concepts of contract law where H can only claim damages if the formation of a valid contract between the two parties is evident via the elements of a contract, including intention, agreement, consideration, legal capacity, genuine consent and legality of objects must be established.

Once these elements are satisfied, the terms of the contract need to be evaluated to deem whether the contract between H and J is enforceable. Once it has been established that the contract is valid, the relevant facts should be analysed in regard to any breach in the contract, and if there is a breach, the extent of the damages which should be awarded to H should be outlined. Contract Validity Upon further examination, this case can be split up, where there are two contracts that are potentially formed.

For this contract to be valid and legally enforceable, offer, acceptance, intention and consideration need to be present. Upon analysing the facts, it can be seen that both parties have full legal capacity as they had enough legal knowledge to make the legal decisions themselves. Consent as well as the legality of objects is not an issue as there is genuine agreement between the two parties as well as the doctrine of privity of contract holds (Latimer 2012). Contract 1 a) Intention.

Although there is a domestic relationship between the two parties implying that there would no intention (Balfour v Balfour); Wakeling v Rippley shows that if there is economic seriousness involved between the domestic parties, the presumption that there was no intention to create a legally binding contract will be rebutted. Therefore intention is present in this first contract, as J pays H $60,000 and $20,000 for the timber and machine respectively. (Khoury and Yamouni, 2007). b) Agreement.

J initially makes an offer to H to buy the timber and machine, H then agrees to that particular offer thereby accepting to supply the goods (R v Clarke). The offer and acceptance is expressed by words, and there is clear communication between H and J. c) Consideration It can be seen that there is consideration in this first contract, as there is an exchange of promises (mutual promise) where J promises the money and H promises the supplies (Latimer, 2012). Consideration is also seen to move from the promise (Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd) as H delivers the supplies and J pays H the original agreed amount of $80,000.

Carter, Peden and Tolhurst (2007) state that consideration must not be past, which is not an issue in the first contract as the agreement to exchange value is made in the present. In addition, the consideration given by both parties is adequate and suitable, which is highlighted by the eventual exchange by both parties. d) Conclusion H and J are engaged in a legally binding contract in this instance which can be enforceable and is legally binding. The contract meets the requirement of the main elements of a contract and as a result, both parties fulfil their duties and there is no breach.

Contract 2 a) Intention The validity of the second contract concerns the increase in payment for the timber by an extra $30,000. As is in the case in contract 1, even though the agreement is of a domestic nature, implying that the contract is not legally bound, this presumption may be rebutted (Khoury and Yamouni, 2007), due to the evidence of the economic situation to H (Wakeling v Rippley). Furthermore J shows his intention to complete the agreement by paying the initial $20,000. This is similar to the Carlil v Carbolic Smoke Ball Co, where by depositing the ?

1000 into a bank, Carbolic Smoke Ball Co, had shown their “sincerity in the matter,” that is, their intention. As a result, intention is seen to exist in the second contract as a result of intentions by both parties to enter into a legally binding contract. b) Agreement For there to be an agreement, the elements of offer and acceptance need to be properly satisfied. H offers to deliver the timber for $90,000, which then becomes binding when J accepts this offer by promising to pay the sum total of $90,000 for the timber, which is unqualified acceptance (Lawbook, 2006, 7.

1. 370). The offer is communicated and accepted by word of mouth (Felthouse v Bindley). Therefore it can be concluded that there is sufficient offer and acceptance between H and J for tha agreed additional $30,000. c) Consideration Consideration is the exchange of “something for something”, or it must be the exchange of promises (Carter, Peden and Tolhurst 2007). In this case, J asks for a supply of timber in return for the promise to pay $60,000 as well as an extra $30,000.

This consideration can be considered as good consideration as the exchange of promises occurs after the verbal contract had been established, unlike in Roscorla v Thomas which indicates past consideration, where consideration is made after the act has been perfomed. This consideration is also adequate as set up by the precedent in Chappell & Co Ltd v Nestle Co Ltd which shows that consideration must have some value, just as the timber, and the promised $30,000 have some value and as both parties are seen to gain some benefit from the exchange.

However, it can be argued that there may be insufficiency of consideration as J is being told to perform a duty that has already been imposed by a contract, the previous contract (Lawbook, 2006, 7. 1. 1290). However upon further analysis of the facts it can be seen that J promises to pay the extra $30,000 in return for “nice timber” as stated by H, with this “nice timber” being the sufficient consideration. Even though H is contractually obliged to provide the timber, the increase in H’s labour costs mean that he is unable to.

By paying the extra $30,000, J is in fact getting practical benefit by not having to look elsewhere for timber, by being supplied with “nice timber” and sustaining the relationship with his dad (Williams v Roffey Bros & Nicholls (Contractors) Ltd). Khoury and Yamouni (2010), state that the Williams v Roffey Bros & Nicholls (Contractors) Ltd case recognised the fact that performance of an existing contractual duty can be used in conjunction with a new promise which extends the contractual duty, only if the promisor (J) receives practical benefit by this performance as J is being assured timber supply.

On the other hand, it can also be argued that this “nice timber” is not a change in the quality of the timber. H as the promisee does not provide something beyond the existing contract to the promisor (J), H demands a higher price, but is providing J with the same quality and amount of timber, therefore this may not be good consideration (Stilk v Myrick) .

Even though J promised to pay the additional $30,000, J was already contractually bound via the first contract to pay $60,000, and by paying the extra $30,000, J is not receiving any extra practical benefit, that is, there is no consideration from H for the additional $30,000 (Khoury and Yamouni, 2010). The argument for practical benefit to J is stronger, consideration is sufficient and good as the promise to pay the extra $30,000 is supported by the consideration by H to supply the “nice timber” (Carter, Peden and Tolhurst, 2007). d) Promissory Estoppel.

Promissory estoppel ensures that the party who makes a promise, can not renege on their promise even if consideration has not been supplied, ensuring that the innocent party does not suffer some loss as a direct result of the promisor not fulfilling their promise (Lawbook, 2008, 35. 6. 250). To establish whether promissory estoppel is applicable in this case, the precedent of Waltons Store (Interstate) Ltd v Maher [Waltons] needs to be mentioned, where the courts established six indicating points to prove whether there is promissory estoppel or not (Carter, Peden and Tolhurst, 2007).

The first requirement is the promise (H), assumes a legal relationship with the promisor (J), this is evident via the previous contract and the agreement between the two parties. Secondly, J was responsible for paying the $30,000 (assumption), and by promising to pa this extra $30,000, H carried on to order the timber for J, knowing that he would be compensated for the increase in labour costs by an increase in payment by J. The fourth element for promissory estoppel to be evident is that J intended H to order the timber, knowing full well that H only pursed the order of the timber because he would be paid in full by J.

The fifth element is that if J does not fulfil the assumption of paying the $30,000, H will incur an economic loss equal to $30,000. Lastly, J did not take any steps to warn H that he may renege on his promise, only telling H he would not pay the extra $30,000 once the timber was delivered (Latimer, 2012). According to Dufty, Heffey and Hocker (1990), cases where the promisor makes it clear that he/she (J) intends to make a promise, must be legally bound to carry out that assumption, or risk being estopped.

Since the facts meet all the prerequisites of estoppel, it can be deemed that promissory estoppel is present, as H would suffer as a result of J reneging on his promise (Waltons). The claims for estoppel can also be corroborated by Central London Property Trust Ltd v High Trees House Ltd. Terms of the contract The terms in this contract are express oral terms, as it is wholly oral, the parol evidence rule can not be used (Latimer 2012). However, the terms of the contract are still clear, and it is evident that a contract exists between H and J.

Furthermore, the conditions of the contract are such that if J did not agree to pay the extra $30,000, H would have not supplied the timber. This is an essential term as H would not have entered the contract if he knew what was promised was not going to happen (Latimer 2012). This is evident in Poussard v Spiers where a breach of the condition allows the innocent party to sue for damages. The fact that there are no uncertain, meaningless or ambiguous terms indicates that this contract can not be void for uncertainty.

Breach of the contract To determine whether there is a breach of the contract, it first needs to be established that there is a valid contract between H and J, which has been proven. This breach will result in remedies under the common law which will equal the monetary value of $30,000 to be paid to H. Causation can be ascertained as the cause of H’s loss, was due to the breach of contract by J, which can be viewed as a consequential loss, which was not naturally occurring (Hadley v Baxendale).

By providing H with $30,000 in damages, the courts will be able to place H in the financial position he would have been, had there been no breach, as such, these damages can be seen as liquidated damages (Latimer, 2012). Tentative conclusion Finally, it is likely that the there is a valid contract evident in both instances, and that promissory estoppel can apply so as to provide H with the proper compensation, even if J did not supply sufficient consideration. J agrees to initially pay the extra $30,000, and it is because of defaulting on this promise that H is set to suffer an equivalent loss.

As such the courts will most likely find this offer legally binding and force J to pay the damages to H. Bibliography Cases Balfour v Balfour [1919] 2 KB 571 Carlil v Carbolic Smoke Ball Co [1893] 1 QB 256 Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 Felthouse v Bindley (1962) 11 CB (NS) 869; 142 ER 1037 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 Poussard v Spiers ( 1876) 1 QBD 410 R v Clarke [1927] HCA 47.

Roscorla v Thomas (1842) 3 QB 234; 114 ER 496 Stilk v Myrick [1809] 2 Camp 317; 170 ER 1168 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 Books Carter J. W. Peden E. and Tolhurst G. J, 2007, Contract Law in Australia, 5th edn, (LexisNexis Butterworths), Australia, pp 135, 147-148, 171 Khoury D. and Yamouni Y. S, 2007, Understanding Contract Law, 7th edn, (LexisNexis Butterworths), Australia, pp 136-138 Khoury D. and Yamouni Y. S, 2010, Understanding Contract Law, 8th edn, (LexisNexis Butterworths), Australia, pp 97-101 Dufty A.

Heffey P. G. and Hocker P. J, 1990, 6th edn, Contract Commentary and Materials (The Law Book Company Limited), pp 635 Latimer, G. 2012, Australian Business law, 31st edn (CCH Australia limited) Sydney, pp 294- 356, 422, 428, 480 Encyclopaedias Lawbook, The Laws of Australia (at 31 August 2006) 7 Contract: General Principles, ‘1 Formation’ [7. 1. 370] Lawbook, The Laws of Australia (at 31 August 2006) 7 Contract: General Principles, ‘1 Formation’ [7. 1. 1290]. Lawbook, The Laws of Australia (at 1 December 2008) 35 Unfair Dealing, ‘6 Estoppel’ [35. 6. 250].