Contract and Legal Offer - Math Problem Example

Case Scenario Using Four Steps Process Name Course Instructor Date Case Scenario Using Four Steps Process Question 1: The Area of Law The area of law relevant to this question is creation of a binding contract. The Principles of Law A binding contract should have essential elements of a contract and at the same time entails capacity and legal purpose. Essential elements of a contract include mutuality of obligation, definite terms as well as consideration. A contract that lacks essential elements, capacity and legal purpose might not be binding. Mutuality of obligation entails offer and acceptance where an offer is where a party makes an offer to the offeree and acceptance occurs when the offeree accepts the terms of the offer1. Definite terms indicate that the contractual terms are reasonably certain since a court should be in a position to assess the bargain and establish obligations of the contractual parties. Consideration refers to what the contractual parties agree to exchange and the consideration should be something of value. Apart from contractual essential elements of a contract, the contracting parties are required to have capacity to contract and the purpose of the contract should be legal and if not the contract might be considered not to be binding2. The contractual parties should have capacity for a contract to be binding. Capacity is the capability of a person to get into a contract and involves mental incompetence, infancy as well as the authority to enter into the contract. Basically, a contract cannot be binding in case one of the contracting parties did not understand the contract due to mental impairment. Mental incapacity can be caused by developmental disability, mental illness, senility or even alcohol intoxication. On the other hand, infancy entails the age an individual should be for him/her to make the contract. Finally, contracting parties are supposed to have authority to enter into a contract which implies that if one of the contracting parties is acting on behalf of another person, the individual burdened should have authorized the party to act on his/her behalf3. In the case Blomley v Ryan (1956) 99 CLR 362, Blomley got into a contractual agreement of buying a farm from Ryan. Ryan who was aged 78 suffered from effects of prolonged and excessive alcohol intake. Later on, Ryan sought to nullify the contract and the issue was if Ryan had the capacity to contract when he entered into contract with Blomley. The jury noted that as much as being drunk does not permit an individual to resile from a contract, if an event where one party is aware that the alcohol has affected the other party critically, equity shall reject specific performance. Additionally, if a court certifies that there was real unfairness where the other party took advantage of the condition, the contract can be rendered void. The jury further noted that factors such as poverty, body/mind sickness, lack of explanation, or age may prompt equity to reject relief. The common aspect is one party impacting the other contracting party by placing them at serious disadvantage. In this case, the sale price of the farm was considerably lower than the market price the reason for this was due to the old age of Ryan as well as mental impairment by habitual alcohol intake and entered into the contract with the effects of heavy drinking and this rendered him incapable of making a reasonable judgment regarding the terms of any business transaction. Blomley was aware of that and went ahead to take unfair advantage of Ryan’s condition. As a result, the jury denied both specific performance and damages as well4. In Gibbons v Wright (1954) 91 CLR 423 case, Gibbons and her two sisters-in-law owned a piece of land as joint tenants. Afterwards, the two sisters effected documents that converted the joint tenancy into a tenancy in common. When the two sisters died, Gibbons alleged that the documents were not effective since the sisters did not have mental capacity whether in such a case Gibbons would turn out to be the sole owner of the land5. Contrary to the case Blomley v Ryan (1956) 99 CLR 362 case, the jury held that there is no ‘set sanity standard’. The prerequisite capacity is relative to the contract being made and that the issue should be the ability of a party to comprehend the nature of the contract after explanation. Therefore, it was required to illustrate that the two sisters had the ability to understand, in case the issue was explained to them that through effecting conversion of the joint tenancy into a tenancy in common, they would be changing the character of their interest in the properties such that rather than the remaining survivor owning the entire property, each would only own a third of the share. However, this was not satisfied in this case and the jury took into consideration if lack of capacity made the contract void or voidable. The conclusion was that the lack of capacity did not make the contract void but just voidable and thus unless the two sisters when alive had sought to avoid the contract, the contract was void and enforceable6. Apply the Law to the Facts In order for the contract to be considered as binding, it has to be established if all the essential elements of a contract were fulfilled and if Fred had capacity to make a binding contract. The essential elements of the contract were fulfilled because there was mutuality of obligation where Fred made an offer to James to increase his salary. Initially, Fred suggested an increase of $1000 but when James suggested an increase of $100,000 Fred accepted. Therefore, Fred made an offer to James, who was the offeree and accepted7. The contract also has definite terms because the contractual terms include James getting a pay increment of $100,000 for working as the CEO of the Smith Enterprises. The obligations of James include working hard as the CEO of Smith Enterprises while the obligations of Fred include giving James a $100,000 increment. Additionally, consideration element has been fulfilled in the contract since the contracting parties agree to exchange something of value where Fred would give James a pay increment of $100,000 and in turn James would work as the CEO. However, Fred lacks the ability to make a binding contract due his mental impairment which has resulted from Alzheimer’s disease. Basically, if one contracting party has a mental illness when entering into a contract, the contract can be rendered void and thus void. Mental impairment of Fred can be illustrated where he starts to cry because the medication he is taking makes him emotional and still the fact that he is suffering from Alzheimer’s disease which affects reduces one’s mental capacity indicate that James did not have the capacity to form a binding contract. As in the case Blomley v Ryan (1956) 99 CLR 362 where Blomley was aware of Ryan’s mental impairment due to prolonged and excessive alcohol intake and went ahead to enter in a contract placing Ryan in a serious disadvantage, James was aware of his father’s, Fred impaired mental condition but went ahead to enter into a contractual agreement with Fred. As a result, this put Fred into a serious disadvantage because with his impaired mental condition, he was not capable of making a reasonable judgment regarding the terms of any business agreement. Seemingly, Alzheimer’s disease had an effect on Fred when he agreed to give Fred a $100,000 increment without much bargaining and thus this condition affected his decision to give the $100,000 increment to Fred8. It is also expected that James was well aware of Fred’s illness though it cannot be ascertained that he knowingly put James into a serious disadvantage by taking advantage of his impaired mental condition9. Conclusion It is likely that the contract between James and Fred is not binding due to Fred’s mental condition where he is suffering from Alzheimer’s disease which may have affected his decision to give Fred a pay increment of $100, 000. Recommendation For James to better secure the money contractually, it would be advisable to ensure that Fred entered into that contract without any mental impairment or without his influence on Fred. Question 2 The Area of Law The area of law relevant to this question is setting aside of a contract. The Principles of Law Basically, a contract can be considered as void, voidable, unenforceable or ineffective and thus may be set aside. There are several factors that may lead a contract to be set aside and they include misrepresentation, mistake, Duress and undue influence, along with incapacity. Misrepresentation involves making a false statement of fact by one contractual party to the other party and this ends up enticing that party to enter in the contract. On the other hand, mistake is a wrong understanding by one of the contracting parties regarding the contract and this can be used as the basis of invalidating the contract. In regard to duress and undue influence, duress occurs when of party threatens the other party to induce the party to do something against one’s will. Duress may be physical, mental psychological or even financial. Australian Contract Law stipulates that is the decision of a party to assent was achieved through duress; the contract cannot be real and is thus voidable. This is because the existence of duress allows the exploited party to pull out of the contract. Undue influence refers to an equitable doctrine that entails one party taking advantage of a position of power of the other individual owing to their special relationship. Undue influence takes place when the dominant party has an effect on the will of the other party to make that party consent to a contract. The oppressed party can void the contract since the contract was entered thorough undue influence. In addition, defense of undue can be availed to the oppressed party even though it was committed by the third party and that party was aware that the aggrieved party was inappropriately prompted to agree to the contract10. An example of case involving undue influence is Johnson v Buttress (1936) 56 CLR 113, where Johnson who was the plaintiff had been taking care of the deceased Buttress for several years. Buttress was not literate and lacked knowhow regarding business activities and relied on Johnson on such matters. Buttress transferred land ownership to Johnson without any legal advice and after Buttress died his son challenged the transfer. The jury set aside the transfer. Even though no evidence was available indicating that Johnson had compelled Buttress to make the transfer, it was held that there was an antecedent relationship between Johnson and Buttress and this cast on her the burden to prove that she did not advantage of their relationship. As a result the jury established undue influence on the basis of ‘presumed’ undue influence11. Normally, presumed undue influence occurs when the relationship between the parties can influence one party to make the decision due to the trust and confidence between the parties. In an event of presumed undue influence, the party should prove that the gift/contract was voluntary and that the donor was aware of his action and understood his action well. In addition, the burden of proof is more difficult to discharge if the donor party is not literate or has problem with his mind12. As mentioned earlier, the capacity of an individual to enforce a contract can affect the validity of a contract. For example, infants and young children may not be held to their bargains because to the supposition that they do not have the maturity of understanding their actions. Similarly, intoxicated people and mentally sick people may lack the capacity to enforce a contract. In such cases, the contract is deemed either void or voidable13. Apply the Law to the Facts In order for Matt to be contractually entitled to the money from Fred, it will have to be proved that he did not have any undue influence or duress on Fred. Additionally, it will have to be proved that Fred had the capacity to enforce a contract when he made the promise of paying Matt $10,000 per year, every year. In addition, for the contract to be deemed valid, it will have to be established that there was no misrepresentation or a mistake when Fred enforced the contract14. From the facts, there was no misrepresentation or mistake since Matt did not regarding anything when James instructed Fred to be paying Matt $10,000 yearly, each year. However, the facts indicate that Matt may have had undue influence of Fred for him to make that promise and this is due to the antecedent relationship that existed between Matt and Fred. Matt used to assist Fred in household chores and other similar activities and apart from his wife, Matt is the only person Fred used to see often and apparently loved Fred’s company. When Fred was instructing James to be paying Matt $10,000, he indicated that Matt had insinuated to him that he wanted to go to university after school and he was likely to struggle and probably this is what compelled Fred to make the decision of promising Matt the $10,000 every year. Usually, undue influence occurs when an individual takes an advantage of the other party to make a decision due to the influence the person has on that person due to the existence of a special relationship between the parties15. Seemingly, Fred really loved the company of Matt and appreciated the way he used to help him. Matt on the other hand took advantage of that special relationship to inform Fred that he would struggle in paying his university education and this somehow contributed to Fred’s decision of having Matt being paid $10,000 yearly. According to the case Johnson v Buttress (1936) 56 CLR 113, Buttress transferred a piece of land to Johnson and it was ruled that even though Johnson may not have compelled Buttress to transfer the land ownership, there was an antecedent relationship between them and thus the transfer was set aside. In this case, Matt may be proved to have had an undue influence on Fred basing on presumed undue influence. Therefore, for Matt to be entitled to the $10,000, it has to be proved that Fred clearly understood his actions and that the promise he had made was voluntary devoid of any influence16. Furthermore, the capacity of Fred is in question due to his mental impairment resulting from Alzheimer’s disease and thus he could have made his decision to have Matt paid $10,000 yearly without understanding his actions well. Conclusion If Matt was to sue, the likely outcome will be that he was not contractually entitled to money from James because he and Fred had an antecedent relationship and thus there was a presumed undue influence of Matt on Fred, when Fred made the decision of him to be paid the money by James. Further, Fred has an evident mental impairment and thus he could not have understood his act of instructing James to pay Matt the money and thus lacked the capacity to enforce the contractual agreement. Recommendation For Matt to better secure the money contractually, he should not have informed Fred of his inability to pay his university fees because this seems to have somehow influenced Fred in his decision making. He should have let Fred make an independent decision without any indication of a ‘presumed’ undue influence. Question 3 The Area of Law: The area of law relevant to this question is essential elements to a legal offer The Principles of Law: The Australian Contract law requires three essential elements for there to be a legal offer. First, the offer should be made with the valid purpose of generating a legal relation. This means that the party making the offer should be completely aware that his/her suggestion represents an offer and should be ready to carry out his/her responsibilities in case of acceptance. In an event where the party making an offer is not serious or is joking, then a real offer does not exist. Secondly, the offer should be precise and certain otherwise it will not be possible for the other party to understand the real intention of the party making the offer and such a contract or an agreement cannot be deemed to be inexistence. Thirdly, the offeree should be informed about the offer. Generally, an offer can involve an individual or many people17. Consideration is another essential element of a contract in that the individual seeking to depend on a simple contract made by another party should illustrate that he/she has made some contribution towards the promise prior to contract enforcement18. Normally, a consideration might be executed, executory but should not be past. Executory entails a promise to do or offer something in future while executed means doing something in reality or giving something. Past consideration implies that the consideration is not part of the bargain element but was done before the contract was formed19. In contractual agreements, consideration should have something of value where the consideration should be sufficient and this implies that a consideration should have some value according to the law. In Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87, Nestle made an advert of records to be sold at 1s 6d each, with the expectation that the anticipated buyer should also send three wrappers from their milk chocolate bars. The wrappers had no value and thus once they were received they were thrown away and the issue was if the “worthless” wrappers were a constituent of the consideration. The ruling was that the money was not a part of the whole consideration for sale of records because a contracting party may specify the preferred consideration20. In the case Anderson v Glass (1868) 5 WW & A'b 152, Glass promised Anderson a bonus for past good work and Anderson sued Glass to enforce the promise. The issue was if the promise was enforceable. The ruling was that the promise was not enforceable because there was nothing in return for the promise as well as nothing new was given for the bonus promise21.   Apply the Law to the Facts When Fred made the promise to be giving his granddaughters any amount up to $50,000, the consideration was past. Fred said that he would be willing to give them the money in recognition of all the joy they had given him over the years. This means that the consideration was neither executory nor executed and thus it lacked consideration22. Still, an offer should be precise and certain for the party to understand the real intention of the offeror. However in this case, Fred did not make a precise offer because he promised his granddaughters any amount up to $50,000 and thus there was no precise offer. This could have contributed to Kat and Jane not understanding the real intentions of Fred and thus when Kat asked for $45,000 to go for a trip with her boyfriend, Fred declined to pay arguing that she should go to university. This can imply that Kat did not understand the real intention of Fred and therefore the contract cannot be considered to have been in existence. However, the offeree was informed of the offer but the offer was not made with the valid purpose of generating a legal relation. The offer was because Fred was happy with the joy his granddaughters had brought him and evidently lacked any legal relation. However, in Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 it was held that a contracting party can specify the preferred consideration and thus Fred should have stipulated his preferred considerations, for instance a consideration of giving his granddaughters money in certain events and the ones he could not give them the money23. Similarly, in this case just like in Anderson v Glass (1868) 5 WW & A'b 152, the promise made to Kat is not enforceable because there was nothing in return for the promise24. Conclusion Kat cannot sue Fred because the offer that Fred made to his granddaughters did not have a valid purpose of generating a legal relation. Moreover, the offer made was not precise and thus was inexistent. Recommendation Kat and Jane to better secure the money contractually they should have ensured that Fred specified the exact amount they were to receive and that the offer had an actual intention of generating a legal relation between them and Fred. Works Cited Bowyer K, Applied contract law, (School of Business Law & Taxation, 13th ed, 2013). Khoury D & Yamouni Y, Understanding Contract Law, (Butterworth’s, 2010) Barnett Randy, A Consent Theory of Contracts, (Columbia Law Review, 1st ed, 1986). LeRoy Miller, Business Law Today: The Essentials, (South-Western College, 2nd ed, 2003). Government of Western Australia, Sale by offer and acceptance, (Department of Commerce, 2010). Monahan Geoff, Australian Ess. Contract Law, (Cavendish Pub, 2nd ed, 2001). Radan Peter, Principles of Australian Contract Law: Cases and Materials, (Lexis Nexis Butterworths, 2nd ed, 2010). Anderson v Glass (1868) 5 WW & A'b 152 Blomley v Ryan (1956) 99 CLR 362 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 Gibbons v Wright (1954) 91 CLR 423 Johnson v Buttress (1936) 56 CLR 113 Read More