Legal Relationship of Xavier and Health Solution Pty Ltd - Case Study Example

Abstract The case of Xavier and Health Solution Pty Ltd reveals that there is contract between them as essential elements of contract such as offer, acceptance, consideration and intention to create legal relationship are all preset in it. Whether Xavier is entitled to termination of contract and claim of damages as applicable for breach of a condition, answer is not in the affirmative. Because, he as a cautious buyer should have ensured by a practical demonstration, the presence of the particular functionality in the software before signing of the contract or at least at the time of installation. Or at least he should have obtained a specific assertion from the seller to that effect. Before Xavier can exercise any rights under contract law he needs to prove there is a contract. Discuss whether there is a contract between Xavier and Health Solutions Pty Ltd. In order to prove that a contract exists between the parties, the underlying agreement must satisfy certain elements of contract. Xavier must prove that the agreement entered into by him with Health Solutions Pty Ltd is a valid contract. A valid contract should have valid offer, acceptance, consideration and intention to form a legal relationship. It is only in this manner, a binding contract can come into existence. (Gilles, 1988) In this case, Xavier approaches Health Solutions to purchase software for his patient management. Health Solution offers Xavier three different versions to chose from that meets with his specification of access to health care records of his patients from the health service. An offer in order to be valid, the offer must have a promise of performance by the offeror. After discussion and bargain, finally Health solutions offers to sell the selected software to Xavier at a discount of $ 500. Here, Health Solution is the offeror and Xavier signifies his acceptance to purchase the software at the price offered. Here, price is the consideration. The requirement of communication of offer is due to the principle that acceptance must be made in reliance of the offer. Corbin’s rule that in bilateral contracts, promise is to be exchanged for a return promise and in practical terms of communication of the offer being necessary have been fully complied with. (Gjergia v Cooper 1987) It is assumed that Jasmine is authorised to act on behalf of Health Solutions and that Jasmine understood what Xavier really meant as far his requirements are concerned i.e the software capable accessing the website Natural Therapists and looking into the records of his patients therein as otherwise there can be not contract for want of meeting of minds. It was also open to Xavier to have a demo before purchase so that requirement was fully understood by the offeror. Once the validity of offer and acceptance is satisfied, the third element of consideration should be present. Here the consideration which must move from the promisee is $ 14,500 as the price of the software which Xavier has paid. Even if the particular requirement of Xavier has not been mentioned in the contract, the fact that such a requirement was orally discussed makes it an implied term in the contract by virtue of business efficacy rule. In The Moorcock (1889), an English case, the business efficacy rule was invoked to give effect to an implied term of the wharf being fit enough for loading and unloading. It was onus on the part of jetty owner to ensure fitness of the wharf so that the ship owner does not incur loss due to damage caused to it by the defective wharf. The business efficacy rule was summarised by Lord Simon in Privy Council decision in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) as follows. [for a term to be implied] (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) It must be so obvious that, “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of contract (BP Refinery) This business efficacy rule was also cited in by Gibbs CJ in a US case, Hospital Products Ltd v United States Surgical Corporation (1984). The above elements of contract apart, there should have been no fraud or misrepresentation on the part of the parties to the contract. As such, if it could be proved that the promisor fraudulently or by misrepresentation has sold the software, it would affect the existence of a contract between the said parties. Thus viewed in all angles, the parties especially the offeror or the promisor Health Solutions Pty Ltd cannot deny there is a contract with Xavier. Assume there is a contract between Xavier and Health Solutions Pty Ltd. Discuss the legal rights and remedies available to Xavier. In your answer you must discuss the impact of the statements made by Xavier and Jasmine In contract, there can be a condition and a warranty breach of which will give different results. Assuming that there is a contract and Health Solutions has not fulfilled the conditions of contract, it should be examined whether it would amount breach of condition or warranty. A condition is crucial to contract. A condition can be either expressed by the contracting parties, mentioned in the statute or courts have interpreted it to be as going to the root of the contract as held in Luna Park (NSW) Ltd v Tramway Advertising Pty Ltd (1938). It is very essential to the existence of contract nonperformance of which is failure to perform the contract. It is of paramount importance to the promisee who would not have entered into contract at all had it been informed that such a condition could not be assured and this stance of the promisee should have been well known to the promisor. Therefore breach of a condition renders termination of contract as well claim for damages. There are implied terms provided for in Sale of Goods Act to be deemed as conditions incorporated in a contract. (Seddon and Davies) As opposed to condition, warranty is a term supplementary or collateral to the main purpose of the contract breach of which will only entail claim for damages. But it is not as simple as it may appear to classify a term into condition or warranty. It cannot be that a term is so important and therefore a condition and not very important and therefore a warranty. The distinction cannot be flexible in that, the term must be characterized as a condition at the time of entering into contract and not at the time of actual breach so as to justify termination.(Carter and Harland, 2002) Care should had therefore to avoid circularity by giving importance to the term in the circumstances. For example, why is this term a condition? Because its breach gives rise to a right to terminate. Why does a breach of this term give rise to a right to terminate? Because it is a Condition (Carter JW and Harland DJ, 2002) Instead of taking extreme positions, law provides for an intermediary condition between a condition and a warranty depending on the scale of importance in that breach of which will entail termination only if it is wrought with serious consequences.(Ankar Pty Ltd v…, 1987) “ Terms will usually be classified as intermediate where a broad variability exists for their breach, from the trifling to the fundamental. Thus, an intermediate term will, according to the gravity of the breach, be said to operate either as a condition or a warranty. (Ankar Pty Ltd v …1987) Hence a term should intrinsically important to be a condition. It should relate to the subject matter of the contract, safety or a deposit guaranteeing performance. Further perishable subject matter such as livestock, a commodity, volatile asset are considered conditions. In the case of Xavier, the surrounding circumstances indicate that the term which has been breached is only a warranty and not a condition. Although he mentioned his specific requirement of access to Natural Therapists’ website, Jasmine only told “it will do the job well” which was vague. Xavier at this stage could have asked for reassurance that it will enable checking his patients’ records and as a man of ordinary prudence would have done, he could have asked for a demo at the time of ordering or at least at the time of installing. He is also reminded of caveat emptor rule. Here the software is not totally dysfunctional but only in respect of a particular requirement seriousness of which was not displayed by Xavier while signing the contract. Hence non compliance of such a term cannot be considered as a breach of a condition. Hence Xavier is not entitled to refund of $ 14,500 paid for the contract as the price. The fee of $ 60,000 fees lost from patients who have gone to other naturopaths also cannot be entertained because he has not provided proof. Further it is hard to believe that such a huge amount would have been lost within a short span of time. Nor could he have waited for a longer period so as to claim more damages. He ought to have brought to the notice of the seller the very next day of delivery if not immediately. Lastly, the claim of $ 125,500 as loss of wages having failed to secure employment in NHP Pty Ltd cannot be sustained. First of all, he never mentioned it to Jasmine. Further chances for such a loss are too remote and farfetched. It must be the amount presumably for a very long period. If at all he had informed of such an offer of employment fruition of which depended on the special functioning of the software, he would be eligible only for a period he is likely to remain unemployed. In these circumstances, he is only entitled for nominal damages as a result of breach of warranty provided he is able to prove he did mention the special requirement and he really incurred loss of patients to his competitors for a reasonably limited period as it is always open to him go in for a new software with the special functionality without loss of time. References Ankar Pty Ltd v National Westminister Finance (Aust) Ltd (1987) 162 CLR 549; 61 ALJR 245; 70 ALJR 641 [1987] ASC 55-566 at 562. Associated Newspapers Ltd v Bancks (1951) 83 CLR 322  BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at 26 cited in Gilles Peter, 1988, Concise Contract Law, The Federation Press , p 86 Carter JW and Harland DJ, 2002, Contract Law In Australia, 4th ed, Butt, p 253 cited in Seddon C Nicholas and Davies JLR, Contract General Principles, < http://legalonline.thomson.com.au.ezproxy.aut.ac.nz> accessed 20 August 2009 Gilles Peter, 1988, Concise Contract Law, The Federation Press, p 10 Gjergia v Cooper [1987] VR 167 at 208 Hospital Products Ltd v United States Surgical Corporation (1984). cited in Gilles Peter, 1988, Concise Contract Law, The Federation Press, p 86  Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 ; 39 SR (NSW) 66; 56 WN (NSW) 31. The Moorcock (1889) 14 PD 64 cited in Gilles Peter, 1988, Concise Contract Law, The Federation Press, p 85 Seddon C Nicholas and Davies JLR, Contract General Principles, < http://legalonline.thomson.com.au.ezproxy.aut.ac.nz> accessed 20 August 2009 Read More