LAW2480 Business Law | Contractual Relationship between Annie and Joe

Law

An agreement which is when combined with legal intention, capacity and consideration results in the formation of a contract. An agreement is established when there is a valid offer reciprocated by a valid acceptance.

The offeror when transfers or communicates certain terms to the offeree which he wish to be obeyed by the offeree, then, such transfer of terms is called an offer in contract law. The terms of the offer must be clear and must be communicated to the offeree to consider the offer as complete and binding and is held in Gibson v Manchester City Council. In the leading case of Carlill v. Carbolic Smoke Ball Co the court held that an offeror has the right to make the offer either to a particular person, or class or group of persons or to the general public but whomsoever it is made, the offer must be communicated to make it a valid offer in law.

Now, when the offer is communicated to the offeree, then, it is the duty of the offeree to either affirm the offer so made or does not comply with the offer terms. But, when the offeree desires to agree with the offer terms then the offeree can either orally, in writing or by conduct express his desire of affirmation and this affirmation is called acceptance in law. It is very necessary that some sort of expression must be carried out by the offeree to communicate the acceptance. If the offeree desires to accept the offer but remain silent then it is no acceptance and is held in Felthouse v Bindley.

Generally, when the offeror makes an offer and if he also clarifies the way and manner in which the acceptance to be made, then, it is necessary that the said manner specified by offeror must be comply with  in order to consider the communicate of acceptance and is held in Latec Finance Ltd v Knight. In Crown v Clarke it was held that no other mode is allowed but slight changes are allowed and when the offeror comes in the knowledge of the acceptance results in a binding agreement.

But, the rule is slightly different when the acceptance is made by post. The acceptance is deem to be complete against the offeror when the letter is put into transit and not when the letter finally reaches the offeror and is held in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.

However, at times, the offeree instead of affirming to the offer wish that some variation must be bought in to such terms by incorporation of new terms in the offer or changes or to bring changes to the existing term, then, it is not an acceptance and is called counter offer. A counter offer cancels the offer. The counter offer made by the offeree is the only new offer that prevails. But, when the offeree does not bring any changes to the offer but seek additional information in relation to the offer then it is not counter offer and is held in Stevenson Jaques & Co v McLean.

When a binding contract is made then the parties to the contract must comply with its terms. Non performance of the terms results in breach of contract and the aggrieved party has the right to seek damages. If the term violated is the root term of the contract, then, it is a condition and the contract thus be terminated and damages can be claimed. If the term is not the root term then only damages can e ascertained.

The rules related to offer, acceptance, and counter offer, postal acceptance rule is now applicable to the facts of the case to resolve the issues rose.

Application of Law

Issue i

Joe is dealing in the business of computers and is operating a store for the repair of the computers in the name of ‘Connect Computers’ (CC). CC enters into a contract with WPS (Whittlesea Primary School) for the delivery of 150 computers for $45,000 by 31^st June 2018.

Joe is need of 75 CPUs so that the contract with WPS be completed. He called Annie (friend) who is operating an IT supply business for the supply of the CPUs. Annie, on 12^th February 2018 sent a email to Joe specifying that she can gave 75single core CPUs @4,000. The email is sent along with a form and if Joe confirms the quote then the form must be printed and send and be return within 7 days.

The email by Annie to Joe is an act of offer which is made by Annie (offeror) to Joe (offeree). the offer is made along with the mode in which the acceptance is to be made. So, Joe must make sure that the acceptance must be made as desired by Annie within 7 days.

However, Joe was not happy with the single core CPU. On 12^th February, Joe request Annie to gave the price for the quad-core CPUs so that he can compare the process of both the kinds of CPUs. A request is also made that the original quote should be kept open for 14 days. Now as per Stevenson Jaques Joe has made request but no changes are made to the original offer of Annie. So, there is no acceptance by Joe neither any counter offer is also made by Joe.

Annie, on 16^th February sent a quote for 75 quad-core CPUs @ $12,000. This mail is just a reply to the request that is made by Joe and there is no cancelation of the offer from the side of Annie.

Now, Joe on 16^th February, Joe prints and sign the order form and post the same. By posting the form an acceptance is made by Joe and the contract is made amid the parties on the 16^th itself and is held in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.

 So, there is a valid contract amid the parties.

Issue ii

Annie sold the stock of CPU to Pear and does not deliver them to Joe. On 18^th, she emails to Joe that she can only supply the CPU until August. Now, because of non supply of CPU by Annie, the contract with WOS is not concluded and Joe has to purchase the CPUs from the market @7,000.

So, the supply of CPU was the root term of the contract amid Annie and Joe, since Annie did not comply with this root term, so, Joe can cancel the contract and sue Annie for the damages that are suffered by him, th at is, $3,000 ($7,000-$4,000).

Conclusion 

Annie and Joe are in contractual relationship. Annie is in breach of contract and thus Joe can claim $3,000 for the damages that are suffered by him.

b.Issue II

Whether Joe be held liable for the damages that is caused to Florence because of his actions? If Yes, then what remedies can be availed by Florence?

Law

In Australia, there are various laws that are formulated which are needed for the protection and safeguards of the consumers at the hands of the suppliers and the manufacturers. One such law is the Australian Consumer Law. The provisions that are framed under the Australian Consumer Law is applicable only in favor of those consumers who has purchased good and services for their personal and domestic use and the goods and services are not more than $40,000 and is rightly enshrined under section 3 of the Australian Consumer law. Once a consumer is covered under section 3 of the Law, then, every supplier and manufacture has certain guarantees that must be comply with by him against such consumers. As per section 64 of the Australian Consumer Law, no guarantees that are made part of the law can be shed away by the supplier or the manufacturer by the incorporating any kind of exclusion clause in the consumer contract that is established amid the parties.

The main consumer guarantees that can be avail by a consumer against the manufacturer includes

Section 18 of the Australian Consumer Law deals with misleading and deceptive representations on the part of the supplier and the manufacturer. The section submits that if any untrue representation is made regarding the good and services in the business course and which has the capacity to misled or deceive the consumers or likely to misled or deceive the consumers, then, such, representation are nothing but misrepresentations and is in violation of section 18 of Australian Consumer law and is established in Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd . The consumer must rely on the statements before entering into the contract and thus the consumer can sue the supplier or manufacturer for damages or compensation for the violation of section 18.

Section 20-23 of the Australian Consumer Law prohibits the acts of unconsiousable conduct on the part of the suppliers and manufacturers while dealing in their business course. When the suppliers has a dominate position over the consumer either because of knowledge , experience, literacy, etc, then the supplier must make sure that no statements must be made which will not allow the consumer to make an independent judgment before entering into a contract with the supplier and is analyzed in Kailash center for personal development Inc, v Yoga Malik Pty limited.

Section 54 of the Australian  consumer Law submits that whenever the goods are supplied by the supplier then such goods must be fit for the purpose for which it is supplied otherwise, there is violation of section and is analyzed in ACCC v Valve Corporation (No 3).

The rules related Australian Consumer Law is now applicable to the facts of the case to resolve the issues rose.

Application of Law

Florence was residing near Joe and was a lady of 70 years. She is not very much flaunt in English and also does not have much knowledge of computers. Joe visited her and sold her a computer for $2,000.

Now, Florence purchased a computer of $2,000, so, the implied guarantees that must be furnish by Joe towards Florence are applicable as Florence is a consumer as per section 3of the Australian Consumer Law. Florence bought a computer of $2,000, which is less than the amount of $40,000, and the same is also bought by Florence for her personal use. So, Florence is a consumer as per the law.

So, now, while selling the computer to Florence, there are various implied gummites that were not comply with by Florence:

Section 18 of the Australian Consumer law was violated by Joe. Before selling the computer to Florence there are various statements that were made by him that were false and are made to mislead and deceive Florence. Joe is aware that Florence has no knowledge of the computer and does not know much English. Considering the fact, Joe made a false statement that the computer that is used by Florence is containing several viruses and that she must upgrade the computer. He sells Florence a new computer. So, these are nothing but false statements of fact made intentionally by Joe in order to deceive Florence. Hence, there is clear violation of section 18 of the law;

Section 20-22 of the Australian Consumer law was also violated by Joe. Florence was not fluent in English nor has knowledge of the computer. Joe is aware of these facts and thus is at a stronger position when compared with Florence. He uses his position and misguides Florence but stating false statements regarding her computer and induces her so that a contract can be made with her. Florence was 70 years old and thus is not in a position to make an independent judgment. Thus, an unconsiousable conduct is undertaken by Joe and Florence can sue Joe for breach of section 20-23 of the Australian Consumer Law.

Joe also violated section 54 of the Australian Consumer Law as the computer was not for the purpose for which the same is required by Florence rather the same was very much upgraded. So, Joe has violated section 54 by supplying a computer that is not fit for the purpose.

Now, Joe was relying on the exclusion clause that was made part of the contract with Florence according to which he established that he will not be liable if the goods so supplied are not fit for the purpose, thus, he is trying to exclude section 54 of the Australian Consumer Law and which is not permissible as per section 64 of the Australian Consumer law.

Conclusion

So, Joe is in breach of section 18, 54, 20-22 of the Australian Consumer Law. Also, section 64 is not applicable as the same is excluding the guarantee which is not permissible.  

2.Letter of Advice on the best business structure

To

Joseph Brunetti

Subject: To furnish advice on the most appropriate business structure required.  

Respected Sir,

Joseph Brunetti is one of our esteem clients and is now intending to look for expansion plans. He is in the business of stores and is operating his business all of his own.  In legal terms he is operating by way of a sole trader.

At this stage I would like to state that sole trader ship has its own set of advantages, that is, no inclusion of external entities or personal, all the profits that are generated through the business are personal, etc.

But, at the same time, there are various problems that can also be considered when the business is carried on as a sole trader ship, that is, in case of death of the owner the business comes to an end, if there is any loss that is caused to the business then it is the owner who has to face the losses which might also be covered by his personal assets, if any money needs to be raise then it is very difficult to secure finance and the only option is when the sole trader himself bring in the cash, also the tax is directly imposed on the sole trader. .

So, considering these major problems that are faced by a sole trader and surely by Joseph Brunetti, so, it is now important to understand the other two options that can be avail by Joseph Brunetti.

The first option that can be sought by Joseph Brunetti is the formation of a company. A company is an artificial legal person and comes into existence upon its registration. Once a company is registered then there are various significant features that can be attributed to a company and which can also be considered its advantages, that is, a company is a separate legal entity in law which signifies that the directors and officers acts are the acts that are carried on by them in the name of the company, a company has perpetual succession and never dies, it can sue, it can hold property, there are several tax advantages, the liability is limited in nature.

But, there are few drawbacks that can also be associated, that is, it is every costly and time consuming to register a company, also the auditing and reporting requirements are also very cumbersome.

Considering the drawbacks of a company, another option that can be used by Joseph Brunetti for his business expansion plan is the way of partnership.

When two or more persons wish to carry on a business with one common objective and with the main purpose of earning gains, then, it is a partnership form of business. Like company there are also various positive attributes that can be availed by way of a partnership, that is, the process of the formation of a partnership is simple, less time consuming and not very costly, since it is only the partners who manages the partnership thus the confidentially exists, the partner can bring in capital to raise money very easily.

But, there are few disadvantages that also comes along with a partnership, that is, the dissolution of a partnership is very easy, that is, on the death of a partner or incoming or outgoing partner, there are high chances of conflict of interest, there is unlimited liability of the partners, etc.

After understanding the concepts of a company and partnership and the advantages and disadvantages that are associated with them, it is now important to guide the best business structure for Joseph Brunetti.

Firstly,  in order to achieve the objective of reducing the tax liability one of the best structure that can be opted is to operate as a company. When a company is incorporated then it is only the company which is charged for tax and not the director or shareholders of the company. But, of partnership is carried on then a dual tax is imposed, that is, on the firm and the partners both.

Secondly, Joseph Brunetti can bring in cash by issuing shares but in partnership he himself has to take pains to bring in the cash. So, a company form of business is a better choice;

Thirdly,  Joseph Brunetti requires persons for the business and in company the same can be employed without bringing them to be part of the business. But, in partnership the partners become part of the business there making it difficult to run the business.

Fourthly, Joseph Brunetti can hire expert people to run the company effectively as an employee and not as the owners of the company but in partnership the experts act as a partner causing unnecessary division of power;

Fifthly, Joseph Brunetti can become the Managing director of the company and operate the company on daily basis.

Sixthly, if Joseph Brunetti operates as a company then, he can in the name of the company acquire vehicles and warehouse. The amount of $600,000 can be raised by share issue or debentures which is not prevalent in partnership. He himself cannot raise finance as his worth is merely of $100,000 (equity) and $20,000 (cash).

So, the best choice that can be opt by Joseph Brunetti is that he must operate by way of a company and not partnership.

Thanks You

Reference List

Books/Articles/Journals

Adams, Michael ,Australian Essential Management Law, (Routledge, 01-Jul-1997)

Carter , John , Contract Law in Australia (LexisNexis Butterworths, 2013).

Eliza, MIK, ‘The Effectiveness of Acceptances Communicated by Electronic Means, Or – Does the Postal Acceptance Rule Apply to Email’ (Journal of Contract Law, 2009).

Gillies, Peter , Business Law, (Federation Press, 2004)

Morandin, Nicole and Smith, Joshua 2011, Australian Competition and Consumer Legislation 2011. Australia: CCH Australia Limited.

Case laws

ACCC v Valve Corporation (No 3) [2016];

Carlill v. Carbolic Smoke Ball Co (1891).

Crown v Clarke (1927) 40 CLR 227

Gibson v Manchester City Council - CA [1978] 1 WLR 520.

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527.

Felthouse v Bindley (1862).

Hyde v Wrench (1840) Beav 334.

Kailash center for personal development Inc, v Yoga Malik Pty limited (2003).

Latec Finance Ltd v Knight (1969)..

Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993);

Stevenson Jaques & Co v McLean (1880)