Legally Enforceable Contract between Allsports and the Customers - Essay Example

Case Study: All Sports Ans A contract is formed by an exchange of promises between two parties that leads to a binding set of obligations upon both parties in implementing their respective sides of the contract. Contracts are deemed by the Courts to be dependent upon the parties concerned, who are free to enter into a contract on the basis of any terms they choose to set up between them, which is known as the freedom to contract. Is there a legally enforceable contract between Allsports and the customers who want to claim the free tickets? There was no written contract as such. The general rule pertaining to advertisements is that an advertisement is not an offer to provide goods but only an invitation to treat. In the case of Spencer and Harding (1870), this rule was deemed valid even if the word “offer” was used in an advertisement and the customer is regarded as making the offer when he shows an intention to buy the goods, which a retailer has the right to accept of reject. The classical will theory of contract is based upon the notion that all obligations of the contract arise out of the individual will of the parties contracting freely. Such a contract is enforced because it represents a bargain made between the parties on the basis of an exchange of goods having taken place. Therefore, in the case of Allsports sales to its customers, there has been an exchange of goods – the customers have purchased 200 pounds worth of goods in exchange for which they are to receive free tickets to the next test match between England and Australia in Melbourne. But applying the principle of the advertisement being only an invitation to treat, no breach of law can be said to have taken place, as was established in the case of Pharmaceutical Society of GB v Boots Cash chemists 1952. A contract represents an exchange whereby an offer is made by one party which is accepted by another party. In this case, Allsports has made an offer to its customers which has been accepted by them. The advertisement placed by Allsports in the National Press in effect, makes a promise to a customer purchasing more than 200 pounds worth of goods, a free ticket to the test match. According to Charles Fried, a person who makes a promise is morally bound to keep it because that person has "intentionally invoked a convention whose function it is to give grounds - moral grounds - for another to expect the promised performance." (Fried, 1982, p16), thereby summarizing the concept of contract as a legally enforceable promise (Williston, 1920). The central question powering the Promise contract theory is: why are contracts enforced? The answer is that they are enforced because one has a moral obligation to keep one’s promises. The principle of consideration determines whether a promise may be enforceable, since an implicit contract is formed if the person making the promise is receiving something in return – some consideration [www.abanet.org, pp 22]. This involves the exchange of “something of value” or the promise to do something in future.[www.bplans.co.uk, 2003].Therefore, on this basis, what AllSports is promising to do in the future is to provide the tickets, in return it is receiving the “consideration” – the enhanced sales of its goods. Therefore, it may be argued that Allsports has a moral obligation to keep its promise to whichever of its customers has acted upon the promise and accepted the offer. One problem with the freedom to contract is that it does not take into account any inequality of bargaining power between the contracting parties. In this instance, Allsports is at an advantage because there is often a vast power imbalance between a retailer and a consumer. There was no written contract between Allsports and each individual customer who purchased over 200 pounds worth of goods, yet there is statutory protection provided to customers which may be operational, making Allsports liable to adhere to the promise it has made through its advertisement, according to the terms spelt out in writing therein. However, in this instance, there was an important limitation on the promise – a time clause. The period of the offer was for 12 weeks from the date of the advertisement. But due to the high demand and the huge success of its advertisement, All Sports ran out of tickets and was forced to forward the time frame by two weeks. Therefore, the period of validity of the contract would be 10 weeks from the date of the advertisement and All Sports would be morally bound to keep its promise to customers who produce receipts for purchases made during that time. But a very important factor that must also be noted is that the original advertisement does not specify that there are any limitations on the number of tickets, the words of the advertisement state “all you need to do is produce valid receipts for more than 200 pounds in total.” There is no additional clause that specifies that this offer is good only “as long as stocks last.” By emphasizing the moral base of contracts, the Courts are faced with the problem of assessing subjective elements such as intentions of the contracting parties and their morals. In the assessment of whether or not damages are payable, Fuller and Purdue(1936-37) have pointed out the detrimental reliance theory, when a party may be obligated to pay damages merely because another party relies on a promise. Other problems that arise are the gaps in promises, which are imputed through nonpromissory principles that may not have been the original intention of the parties. Therefore is AllSport to be held liable to pay up to all customers for the promise it has failed to keep in their case? Are they obliged to pay damages merely because all customers have relied on their promise? Can All sports rely on the precedent established in the case of Texaco vs. Pennzoil whereby the courts have stated that the contractual obligaitons would depend upon whether the parties “intended to be bound” (p 789). Is AllSports obligated to pay out damages in the form of supply of tickets when its offer was not mala fide but merely so successful that the tickets ran out and it was unable to adhere to the promise in the case of all customers? In the Cohen vs. Cowles (1990) media case, the deficiencies of the Promise theory were stated by the Court, in that a moral obligation alone cannot support a contract; “Nor does the law consider binding every exchange of promises” (pp 202-203). A failure to keep a promise does not make a contract misleading or deceptive, as set out in the cases of Future International Pty Ltd vs. Gadzhis, because it may have been well intended while entering into it. (page 238- end note 1). Therefore, AllSport may be said to have produced an invitation to treat and the customer, by purchasing the product has indicated his willingness to buy AllSports goods which the retailer is free to accept or reject. All Sports offer may have been well intentioned but it had unexpected consequences, it produced a demand greater than the supply available to satisfy it. In the case of the first customer Tariq, there are two factors in his favor: (a) he purchased 200 pounds worth of goods within the first four weks and before the limitation notice was placed (b) There is no specific indication provided by All Sports that its offer will only hold good until stocks last. It only imposed its limit later, two weeks before the date of expiry of the offer, the reason being that it had run out of its stock of tickets. But this does not apply in the case of Tariq who has completed his purchases before the limit was imposed. Through the advertisement, a specific written offer was made to the customer, which he chose to accept through his purchase of the goods and no limiting clauses were included that would cover the period of his purchase or specify that the offer was good only till stocks last. Therefore, AllSports would be obliged to provide the free ticket that was promised to Tariq. In this case, AllSports did not merely display the goods and leave it to the customer to make an offer. Rather, specific terms were included in the advertisement and a definite period was also specified, levaing nothing much to negiotiate and therefore, it would be construed as an offer, as was the case in Lefkowicz vs. Great Minneapolis Surplus Stores Inc (1957). All Sports would also be obliged to make reparation to the customer Rubina. Whether or not Rubina saw the advertisement is not the major issue, the moot point is – did she satisfy the terms of the offer by accepting and acting upon its requirements? If she did, she is entitled to receive the benefits of the offer. For example in the case of Carlill vs. Carbolic Smoke Ball Co (1893), the terms of the advertisement were so specific that it was deemed to be an offer to the whole world and a unilateral contract was made with whoever accepted the terms of the contract on good faith, on the basis of the advertisement. Therefore, although Regina did not see the advertisemnt, she has two points in her favor (a) she has completed her purchases within the first four weeks before the limitation was placed (b) she has the receipts to prove it. The advertisement was made by national newspaper, therefore it was intended for public consumption and comunication among other members. Therefore whether Regina learnt of the terms of the advertisement directly or indirectly will not prove to be a limitation on her collecting the damages. AllSports would be well advised to reimburse Tariq and Regina, either by way of providing an extra ticket or by providing the cost of the ticket. Failure to do so could provoke legal action from these two consumers, which would mean the payment of large amounts of damages. Consumer action suits also have the nasty side effect of creating a bad image of the Company and causing its reputation to suffer. When other consumers come to know that AllSport has failed to reimburse two customers who had a genuine claim, there will be unpleasant publicity and future promotional efforts of the Company could also be affected. Possibly, other customers who also have a valid cause of action could join in a consumer action suit which could prove to have conseuqence sserious enough to put AllSport out of business. However, the case of Jane and Tom is different. While AllSports may have erred initially in not specifyng in the original advertisement that the offer was valid only till the stocks lasted, it has effectively made up for its lack by stating it in the printing of the notice so that customers would be aware that the offer was no longer good. In the case of Jane, there is likely to be some ambuiguity involved since the evidence in her case will show that she purchased 150 pounds worth of goods before the limitation notice was out and 100 pounds after. Therefore, the dispute arises because the amount that was to be spent was 200 pounds, which Jane has not spent in the specified time so this makes her ineligible to receive the free gift. On the other hand, if she can prove that she was ready to spend 200 pounds, or had actually ordered goods worth 200 pounds but refrained from buying them then and there because she had inadequate funds on her at the time, or because of some other pressing reason, it is possible that she may be able to prove eligibility to receive the free ticket. She will however have to prove her claim, through appealing to the courts for admissibility of parol evidence to prove that she would have purchased goods for the entire amount, except for some pressing reason. But whether or not this would succeed is doubtful and would depend upon how well Jane argues her case. However, in this case AllSports has two major point sin its favor (a) its written advertisement specifically states the amount that has to be purchased and (b) the advertisement also specifies the time limit within which the purhcase must be made and Jane’s additional 100 pounds of expense is not included within the exact date. In the case of Tom, AllSports would not be liable at all, because (a) Tom has completed his purchases after the note about the expiry of the offer was given (b) Tom also had knowledge about the existence of the limitation clause and chose to complete his purchases anyway, therefore he entered into his contract knowing full well that the offer was not valid at the time he was making his purchases. Thus AllSports is not obliged to make any reparation to him for any kind of damage. By disclaiming any liability against the claims of these two customers, AllSports is not likely to suffer any adverse consequences since it has a good case in its favor and is likely to succeed even if Jane and Tom file consumer action suits. Ans 2: The written contract between Spike and AllSports sets out the terms of agreement between the two parties for the supply of footwear. Although the contract is actually a form contract which Allsports has signed and sent back with a modification indicating that it wants an opt out clause, the contract is still valid. This contract cannot be declared to be non-operational merely because it was a form contract prepared by Spike which AllSports endorsed. According to the Uniform Written Obligations Act, which has been in effect in Pennsylvania since 1927, “A written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in the form of any written language, that the signer intends to be legally bound.” In this instance, the standard order form that was sent out by Spike was signed and returned by AllSports, thereby indicating its agreement. Moreover, AllSports has also included an additional clause wherein it has specified an option to cancel at two weeks notice. Therefore, there can be little doubt about Allsports’ intention to be legally bound by the terms of the contract. The problem that arises in the execution of the standard order form is the fact that there is also a definite time frame specified in the agreement of a twelve month period, which ha snot been specifically addressed by all Sports, which has merely indicated that it has an option to cancel at two weeks notice. Therefore the issue of ambiguity in the contract arises in this case. A written contract is considered the final document in the event of a legal adjudication of a dispute. What is set out in writing is taken as the basis upon which all legal decisions are reached and a written contract is given precedence over all other protestations or oral representations that may be made. The issue of Parol evidence may be relevant here, if AllSports can provide any other supplementary evidence to show that it had not actually intended to adhere to the time frame of 12 months that was specified in the standard order form. The basic purpose of the Parol evidence rule is to uphold the finality of the written document by excluding evidence that may suggest that the parties had a different intention from that framed within the written contract. It does not allow any evidence to be introduced when there is a written contract in existence. Therefore, it may be difficult for AllSports to prove that it had not intended to strictly adhere to the twelve month frame but that its contract with Spike had been more of a trial to determine the quality of Spike goods. There is some ambiguity associated with the twelve month period and AllSports may be able to make out a case that its two week notice clause was meant to apply any time duration of the contract, either through evidence provided about any telephone calls to Spike specifying the nature of the transaction or through other kinds of evidence showing the intention of all Sports in entering into the contract. In the case of Ginger Development Enterprises Pty Ltd v crown Development Australia Pty Ltd, the Court acknowledged the difficulty inherent in framing the limits of ambiguity; “A broader concept of ambiguity is involved; reference to surrounding circumstances is permissible whenever the intention of the parties is, for whatever reason, doubtful." Kirby P, in the case of B and B Constructions Pty Ltd v Brian A Cheeseman and Associates, also addressed the difficulties in specifying ambiguity (p 452) and said that there could be a patent ambiguity in which case extrinsic evidence could be used to clear up the doubts, while in the case of a latent ambiguity – or an ambiguity that is not so clear, the Court may or may not allow extrinsic evidence to be used.(p 453). In the contract between Spike and Allsports, the 12 month time clause is the most important factor. The period which was meant to be covered by the two week notice clause is one that presents a latent ambiguity, where the court may or may not allow the presentation of extrinsic evidence. While Spike has proposed an initial 12 month period in its standard form contract, AllSports has not specifically changed the period of the contract. If it has not changed it, then the assumption that will be made based upon the written standard form order which has been signed by Allsports, is that the Company agreed to the period of twelve months specified in the contract. AllSports has not stated anywhere in the contract that it proposes a different time frame for applicability of the contract, neither has it indicated any disagreement with the time frame of twelve months. It has merely specified a two week notice period for terminating the contract. Therefore, this twelve month time frame is likely to be the deciding factor. While there is little doubt that AllSports has every right to exercise its option to withdraw from the contract, the ambiguity lies in the term of the contract. Yet, another factor that stands in the favor of AllSports is the fact that it has after all, purchased Spike products for a period of six months already. There are several contingencies that may prevent a company from carrying through on its contract, such as lack of availability of funds, the discovery of a better option, etc. However, by affixing its signature to a standard order form that specifies a period of twelve months without making any additional provision to specifically revoke that time frame and introduce a more flexible time frame, AllSports has made itself liable to fulfill the terms of the contract. If it is unable to fulfill the terms of the contract and purchase the goods for another six months, it will be obliged to make some kind of reparation to Spike. The terms that are working in its favor are the fact that it is entitled to cancel its contract on two weeks notice and since there is some ambiguity associated with this clause, it could claim that this two week notice applies to the entire duration of the contract. AllSports could claim that this clause effectively cancels out the twelve period limiting factor. If this is supplemented by additional evidence it could mean that AllSports would escape any liability. However, whether or not Allsports would win a suit framed on these terms cannot be guaranteed. The better option would be for Allsports to work out an amicable settlement with the Spike Company whereby some partial reparation could be made for the losses Spike is likely to suffer from early termination of a contract that was originally deemed set for a period of twelve months. In this way, Allsports would have two advantages in its favor (a) avoiding a law suit with its attendant expenses and protracted delays (b) retain Spike as a business ally from whom AllSports could take up special offers at a later date as well. The risk of Spike pursuing a damages suit is not one that will provide any positive benefits to Allsports. The failure to carry through on the duration of twelve months will be deemed to be a breach of contract by AllSports and will entail the payment of not only the losses to Spike but also damages for the breach of contract. This is not an advisable option, unless Spike proves to be unreasonable in accepting a compromised settlement. Ans 3: Allsports has a decent cause of action for pressing its claim to recover its monies for the sales that it has made to the club. On the basis of what has been stated above, vide answer 2, it is clear that a written contract is the basis of adjudication for any sort of dispute that arises out of the execution of a contract. The facts of the matter are that the club has entered into an agreement with Allsports. It has agreed to accept and Allsports has agreed to supply, quality golf clubs and the price has also been agreed upon as evidenced by the signatures of the representatives of the two companies. Therefore the contract is a legally enforceable and binding contract upon both the parties. The freedom to contract means that as specified by the will theory, parties are free to enter into contracts according to the terms that they find acceptable. Under the Doctrine of Consideration in the Contract law, the term “consideration” is said to refer to any promise, act or transfer of values that induces a party to enter into a contract [www.abanet.org, pp 20]. The basic premise of a contract is the concept of Offer and Acceptance. When one party makes an offer and another party accepts it – either orally or in writing – then a contract is said to exist [www.bplans.co.uk, 2003]. Therefore, since there is a written agreement between the two parties, a contract exists and it is legally therefore legally enforceable in the courts. The important issue to be considered in this case is the claim made by the club that it has found an alternative source for the goods at a much lower price. The club has every right to decide whom it wishes to do business with, it may opt for the lowest offer that it can get. However, the right of the club to contract freely with another party that can supply it the goods at lower costs does not negate its contract with Allsports. At the time of framing of the contract the club has agreed to pay a certain sum for the equipment that Allsports has supplied. If for some reason, Allsports had failed to supply the goods, or if it had supplied damaged, defective or missing goods, then the club would have had a good cause of action to approach the courts and get the contract between itself and Allsports cancelled. However this is not the case. Allsports has faithfully carried out its part of the deal, which was to supply the goods, however the club has reneged on its part of the deal and has not made payment for the goods that have been supplied to it and which it has accepted. By accepting the goods, the club is committed to making the payment since it has received some consideration, according to the provisions of contract law. . In the event of any kind of negotiated settlement being relevant in this case, a necessary pre condition is that both the parties must get together and mutually agree to the new negotiated settlement. The agreement of both parties is vital. This is the glitch in Allsports new proposal to go after the dues of 4000 pounds that are still due to it. It has agreed to accept the 6000 pounds that the club has offered based upon the promise of future orders. Therefore, in effect, this would be considered as the resolution of the dispute that exists in terms of the club’s payment for the goods that have already been supplied to it. Allsports, by agreeing to accept 6000 pounds has effectively given up any claims that it had over the fulfillment of the terms of the original contract. There may be several reasons why a party is unable to carry through with the provisions spelt out in a particular contract. However, this will not affect the validity and enforceability of the original contract in any way. The issue of difficulties being experienced by the club or by Allsports are not relevant to the validity of the contract. The important issue at stake will be the terms of the contract and whether they have been fulfilled or not. Once a party has affixed its signature to a contract, the legal assumption is that the party finds the terms of the contract agreeable and has so affixed his signature. Any disputes arising out of the contract will have to resolved either through arbitration or legal action in the Courts. Arbitration will involve a renegotiation of the terms of the contract. Any changes or adjustments that have to be made will have to be done with the consent of both parties to the contract. The fact that Allsport has agreed to accept the payment of 6000 pounds means that it has agreed to the re-negotiated terms of the contract. Therefore, the club, by paying out the 6000 pounds has fulfilled its obligations in reference to the original contracted the two parties entered into. The fact that Allsports is now in temporary financial difficulties places no bar upon enforcement of the terms of the re-negotiated contract. This re-negotiated contract now supersedes the original contract and will therefore deemed to be the valid version of the contract between the two parties. According to this new version, Allsports has agreed to accept 6000 pounds and a future promise to buy its goods, hence it has no more causes of action against the original contract, which is fully closed. Contract law is concerned with the provisions in the written word. Entering into a contract is akin to a promise to fulfill the terms that are laid out in the contract. The Club it has put forward an alternative proposition to the original contract, which Allsports has accepted - a payment of 6000 pounds and the promise to purchase goods from Allsports in the future. The fact that Allsports has agreed to this proposal is likely to prove to be a hindrance in the adjudication of any suit based upon the provisions laid out in the original contract. The new terms that are in place are akin to a re-negotiated agreement having taken place which will impact upon Allsports’ chances if it pursues its cause of action for recovery of full dues from the club. Its chances of recovery of the 4000 pounds are practically nil, since the legal perspective will be that the club has fulfilled the terms of its original contract through the new agreement which has been found acceptable by Allsports. Therefore Allsports cannot now go back on its agreement with the club in resolving the payment issue. Thus in view of all the factors and circumstances concerning the deal with the club, Allsports is in a somewhat tenuous position now for recovery of the balance of its dues. It can of course press its suit and could possibly win if it can prove that it did not conclusively agree to the compromise of 6000 pounds on the basis of a future promise. Otherwise, the only alternative would be to depend upon the promise of the club that it will purchase goods from Allsports in the future and in the event that any breach of this promise by the club happens, Allsports can press for recovery of not only the balance amount of 4000 pounds due to it from this transaction but also sue for damages for breach of contract and breach of promise. However, any action by Allsports appears to be more favorable in the future, the present cause of action has been compromised by Allsports agreeing to the club’s offer to pay 6000 pounds and a future promise to buy goods. Therefore the present cause of action to recover the 4000 pounds from the club is not an advisable option to follow. References: * B and B Constructions(Australia) Pty Ltd v Brian Cheeseman and Assoc Pty Ltd (HPH 451) * “ Chapter Two: Fundamentals of Contract law”. (No Date). Retrieved July 5, 2005 from URL: www.abanet.org/publiced/practical/ books/consumer/chapter_2.pdf * Cohen v. Cowles Media Co., 457 N.W.2d 199 (Minn. 1990). * Fried, Charles, 1982. “Contract as Promise” Boston: Harvard University Press, pp 9-17. * Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, 236 * Lefkowitz v the Great Minneapolis Surplus Store (1957). 251 Minn 188, 86 NW.2d 689 * Spencer v Harding. (1870) LR 5 CP 561 * Pharmaceutical Society of GB v Boots Cash chemists (1952) 2QB 795 * Texaco, Inc. v. Pennzoil, Co., 729 S.W.2d 769 (Tex. App. 1987) * Fuller Lon L and Perdue, Jr., William R. (1936-37) The Reliance Interest in Contract Damages, 46 Yale Law.Journal. 373. * Ginger Development Enterprises Pty Ltd v crown Development Australia Pty Ltd (2003) NSW CA 296 * Uniform Written Obligations Act, Pa. Stat. Ann. tit. 33, 6 (West 1997). * Nolo. (2003). “Simple and Enforceable Contracts”. Retrieved November 18, 2005 from URL: http://www.bplans.co.uk/leu/article.cfm/132 * Williston, Samuel W. (1920). The Law of contracts 1st ed. End Notes: 1. “If it be said that [the promisee]... was mislead into entering into the contract, then the breach is irrelevant, for that breach could have played no part in misleading him... the promisors combined action could not be characterised as misleading or deceptive at the time the promisee was induced to accept the promise because the breach had not occurred at that stage” (Ormiston J – see Futuretronics vs. Gadhzis at p 238) Read More