The Contract between Buyer and Seller - Case Study Example

Name Course Lecturer Date of submission Commercial Law Abstract of the case A buyer has expressed the desire to buy a courier van from a seller. The seller demands for a $5000 cheque and makes it clear that buyer ought to pay the balance on or before 1st November. Buyer then discussed a deal with an investor the night after and he planned to run a document courier service where he spent a total of $1200 on flyers, business cards and a cellular phone. According to the buyer, the projected profit in the first year of business would be $50,000 and this made the investor to chip in $20,000 for Buyer to acquire the courier van. Buyer contacted the Seller on 25th October to acquire the van but was turned down as Seller claimed someone else had offered him $35,000 for the same. Since Seller had not cashed the $5,000 cheque that buyer had already mailed, Seller offered to give him the van and deposit the cheque only if he paid $20,000 upfront and $400 a month for 25 months. Validity of the contract The potential claims Buyer has against Seller are dependent on the terms and the elements of the contract that subsist between them. An offer and a corresponding acceptance are the main features that prove the validity of any contract1. However, in cases of invitation to treat, an offer has to be made by the buyer to the seller. The above case is an invitation to treat because Buyer saw a courier van with a “for sale” sign on it and made an offer to buy the van. The offer was clear and unequivocal as per the Australian Contract Law2. The “for sale sign” on the van implied that it was an invitation to treat and not an offer per se. A case example is Fisher v bell [1961] 1 QB 394 where it was held that goods which are on display with the sole intention of being sold are deemed as an invitation to treat3. The acceptance of an offer should be communicated by electronic, postal, or verbal means and by conforming to the contractual terms4. However, as a rule, an offeror is entitled to revoke an offer any time before the offeree has accepted the terms of the contract. An offeree is too late to accept an offer once it hit is clear or it has brought to his/her attention that the property has been sold to someone else5. This was held in the case Dickinson v. Dodds, 2 Ch.Div. 463 918766. Seller accepted the offer by asking for a $5,000 payment and the balance to be paid by 1st November which was the consideration in this case. The contract between Buyer and Seller is therefore legally enforceable because the case has proved to be legally valid, buyer may claim that Seller revoked the contract by breaching the predefined contractual terms claiming someone had offered to pay more for the same van. Buyer had already mailed the $5,000 as agreed and was to settle the balance before 1st November as per the terms of the contract. However, on October 25th when he was ready to clear the outstanding amount, Seller changed the contractual terms by requiring him to pay the outstanding $20,000 and an additional $400 for 25 months which is $5,000 more than the previously agreed amount. The fact that Seller had not cashed Buyer’s cheque cannot be advanced because, the postal rule contractual terms are adhered to immediately when a letter is posted by either dropping it in a postal box or handing it to a postal worker and not when the letter has been received by the other party to the contract7. Case example of the postal rule is Adams v Lindsell (1818) B & Ald 6818. The postal rule is based on the rationale that the post office is nominated by the party to a contract as an implied agent and rules out the risks of the letter being lost or delivered late9. This was emphasized in the ruling of the case Household Fire Insurance Company v Grant (1874) 4 Ex D 21610. Buyer may also claim undue influence where Seller induced him to be part of the contract immediately after Seller had disregarded the contract revocation. This exerted an outside pressure that negated the free will of Buyer to be involved in the contract because he was apprehensive that he might not be in a position to start the document courier service. Bearing this in mind, Buyer was forced to accept the new unfair contractual terms for the sake of his business. Buyer will therefore have to prove the exertion and existence of the influence and the relationship between him and Seller (fiduciary relationship) as it was held in Johnson v. Buttress (1936) 56 CLR 113)11. Whenever undue influence has been proved in a contract, the only remedy available is rescission12. A contract will involve undue influence only if one party to a contract uses a certain influence to exert pressure for the other party to enter into a contract and which is detrimental for the induced party13. Case example for undue influence was observed in Garcia v National Australia Bank (1998) 194 CLR 39514. In regards to defenses, Seller may use the “Frustration of purpose defense.” Frustration of purpose occurs when a certain predicament comes up uncertainly and it renders the contractual terms unenforceable by frustrating one party to a contract15. This was held in Krell v. Henry, 2 K.B. 740 (1903)16. Seller may therefore claim that an unforeseen predicament arose and it rendered his ability to adhere to the contractual obligation impossible hence his revocation. However in respect to frustration of purpose principle, the party to a contract seeking defense should neither be at fault nor induce the frustration. This principle was revoked in the Maritime National Fish Ltd v Ocean Trawlers Ltd court ruling17. Additionally, occurrence of the event that frustrates the contract ought to be a basic assumption upon which the contractual terms have been embedded on18. Another defense that Seller can use is a unilateral or mutual mistake where both parties made a mistake and parties cannot come to a consensus. Such a predicament question the existence of a contract and it is unenforceable by the courts that the mistake substantially affected the subject matter of the contract, as determined in the Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd19. In addition, the court will not enforce a contract if one party one party was aware that the contractual partner had already committed a mistake and did nothing to mitigate the repercussions20. In the case Davis v. Pennsylvania Co. 337 pa. 456, it was ruled out that a partner in a contract may not be held liable for passing along false or incorrect information so long as it was acquired in good faith without any knowledge that the information might be inaccurate or a falsity21. Similar sentiments were expressed in Roswell State Bank v. Lawrence Walker Cotton Co., 56 N.M. 107, 240 P.2d 143 (1952)22 In the event of the case of Buyer v Seller going to court, Buyer will prevail in his lawsuit because he was subjected to a financial detriment by Seller and will be entitled to damages, which will compensate him as a result. Damages are a money award or legal remedy that serves as compensation to the innocent party in a contractual agreement23. This argument is supported by the ruling in the Addis v Gramophone [1909] AC 488 case24. Damages will be awarded to reinstate Buyer to the position he would have been if the contract had not been revoked and charged the extra $400 for 25 months. It should be noted that the awarding of damages in the law of contract is subject to remoteness, causation, and duty to mitigate the loss25. Damages are of various types and may vary depending on the claim that has been presented. Buyer may be entitled to special damages, which compensate the plaintiff for the suffered monetary losses such as lost earnings and extra costs. Special damages will essentially entail punitive and compensatory damages26. Special damages in tort law and contract law differ in that in law of torts, the damages will reinstate the plaintiff to where he would have been had the tort not taken place27. Buyer will therefore be awarded special damages of $500, which exceed the $25,000 he was supposed to pay for the courier van. Buyer may also be entitled to nominal damages, which are small damages that would be awarded by the court to show that the financial loss that has been suffered is technical and not actual. One of the best known damages historically was accorded to James Whistler in the course of his libel court case against John Ruskin28. A party that has been wronged and may not prove substantial damages will only sue for the nominal damages. The court may also award Buyer with compensatory damages whose intention is to compensate him for any losses that have been suffered from the breach thus making the injured party gain29. Compensatory damages may either be consequential or expectation damages. Restitutionary damages may also be awarded whose ulterior objective is not to bar the breaching party (Seller) from any unjust enrichment30. It ensures none of the parties gain from the revocation of the contract. Damages may be subject to either reduction or modification if the plaintiff has failed to honor his end of the bargain. The contract between Buyer and Seller did not provide for any liquidation damages because such damages are only determined during the contract formation, and are available when damages are not foreseeable. In the case between Buyer and Seller, liquidation damages will not be applicable. In addition, damages recovery is subject to the principle that damages need to be proximately caused by wrongful actions of the defendant. This is termed as the doctrine of proximate cause and it governs all the compensatory damages. The rule does not hold in intentional torts such as tort of deceit31. Works Cited Blum, Brian A Contracts: Examples & Explanations. Austin: Wolters Kluwer Law &Business, 2007. Print. Chen-Wishart Mindy. Contract Law. Oxford: Oxford University Press, 2012. Print. Gillies, Peter Business Law. Sydney: Federation Press, 2004. Print. McKendrick Ewan. Contract Law: Text, Cases, and Materials. , 2014. Print. Poole, Jill Textbook on Contract Law. Oxford: Oxford University Press, 2012. Print. Cases Referred to: Addis v Gramophone [1909] AC 488 Roswell State Bank v. Lawrence Walker Cotton Co., 56 N.M. 107, 240 P.2d 143 (1952) Maritime National Fish Ltd v Ocean Trawlers Ltd Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd Krell v. Henry, 2 K.B. 740 (1903). Garcia v National Australia Bank (1998) 194 CLR 395 Adams v Lindsell (1818) B & Ald 681 Dickinson v. Dodds, 2 Ch.Div. 463 91876 Fisher v bell [1961] 1 QB 394 Read More