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CO5119 Business Law

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CO5119 Business Law

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Course Code: CO5119
University: James Cook University

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Country: Australia

Question

Peter wants to sell one of his cars that has a diesel motor to his nephew Brett. Brett is eager to purchase the car but Brett does not realise that one of his uncle’s cars is diesel.
Peter writes a letter to Brett as follows:  
“Dear Brett,
I know that you are interested in buying one of my cars. I would like to give it to you but I know that you won’t accept charity. Therefore I will offer it to you for $500 (I reckon it is worth about $2,000). If I don’t hear from you by this Friday I take it that you are happy to buy it for $500. I will then drop off the car to your place on the weekend.”
Regards,
Peter”
Brett does not see the letter and there is no further communication between Peter and Brett.  
On Saturday, Peter delivers the diesel motor car to Brett’s home. Brett arrives home to discover the letter and the car from his uncle. Brett realises the car is diesel and he does not really want the car. However, Brett decides the car is still useful and starts driving the car to and from university. After three weeks driving the car Brett decides that he will return the car. He has not yet paid Peter any money. Peter thinks Brett is ungrateful and demands full payment.
1. Brett wants to return the motor car to his uncle. Peter is angry with his nephew and he demands payment for the car. Peter says he will lodge a small claim and sue Brett for the money. Brett states  “we are family and you can’t sue me.”
Explain whether the uncle/nephew relationship has any effect on whether or not there is a binding agreement.   
2. On the same telephone call Brett also says to Peter that “There is no contract because I never agreed to anything. Peter says “It’s a bit late to return the car now. You’ve been driving it around”.
Has Brett accepted an offer from Peter to purchase the motor car?  
3. On the same telephone call Peter says that “I was being nice to you and offering you the car at ‘mates rates’.
Could $500 be valid ‘consideration’ for a contract to sell the diesel motor car? Explain why/why not? 
4. Brett tells Peter on the same telephone call “Even if you can convince the judge that there was an agreement, I can get out of it because I didn’t know you had a diesel car and I never wanted a diesel car. I thought all your cars were petrol”. Is it correct that Brett can avoid contractual obligations on the basis of his mistaken belief? Why/why not?

Answer
1. Issue
Whether the uncle/nephew relationship between Brett and Peter has any effect on the binding agreement between parties?
Rule
A legally binding contract which has the authority to bind its parties into a legal relationship is referred to a contract. Certain elements of a contract must be fulfilled by the parties to ensure that a valid legal relationship has established. These elements include offer, acceptance, consideration, intention, and capacity of parties (McKendrick, 2014). Intention is a key element without which a valid contract cannot be formed between parties. In case the parties forming a contract did not have an intention to bind each other into a legal relationship, then a contract cannot be formed.
Moreover, in the case of social or domestic settings, the offer made by a party did not consider as valid since the parties did not have an intention bind them into a legal relationship. In Cohen v Cohen (1929) 42 CLR 91 case, the court provided that an agreement which is formed between the parties in which the husband promised to pay for a dress allowance is considered as unenforceable due to lack of valid intention of parties (Graw, 2012). Similarly, the court provided in the judgement of Parker v Clark (1960) 1 All ER 93 case that an agreement which is constructed in social situations are not considered as legally enforceable because parties did not have an intention to create legal relationships. However, it did not mean that parties who are in a relationship cannot form a contractual relationship with each other; however, they have to specify that they had a valid intention to form the legal relationship.
Application
In the given case study, Peter and Brett are in an uncle/nephew relationship, and Peter wanted to give his car to Brett. Just because Peter and Brett are in an uncle/nephew relationship, it did not mean that they cannot form a legally binding relationship between each other. They have to specify their intentions to create a legal contract with each other. However, in this case, Brett did not have a valid intention to form a contract with Peter to purchase his car. The decision of sending the car to Brett was taken in a social condition based on which a valid intention of Brett was not present (Cohen v Cohen). Since the parties were in the uncle/nephew relationship, the intention of Brett was not considered as valid, and a legal contract has not formed between the parties (Parker v Clark).
Conclusion
To conclusion, the uncle/nephew relationship affects the legal relationship between Peter and Brett since Brett did not have a valid intention to form a legal contract with Peter.
2. Issue
Whether not returning the car to Peter and driving it around is considered as a valid acceptance by Brett?
Rule
A valid acceptance is a key element of a contract without which a legal relationship cannot be formed between two or more parties. There are certain elements of acceptance which must be fulfilled to constitute it a valid acceptance. It is only considered as effective if it is communicated to the offeror. The terms of the acceptance must exactly match the terms given in the offers. Lastly, the acceptance must be certain without any ambiguity. In Felthouse v Bindley [1862] EWHC CP J35 case, a nephew told his uncle that he is interested in purchasing his horse and he told him that he did not hear from him, then he will consider that the uncle has sold his horse to him. The horse was sold in an auction, and the nephew filed a suit against the uncle. The court provided that a legal relationship did not form between the parties because silent is not considered as a valid acceptance (Yeen, 2015).
Application
In the given case study, Peter specifies in the letter that if he did not hear from Brett, then he will consider it as his acceptance for purchasing the car. The silence of Brett is not considered as a valid acceptance based on which a legal contract cannot be formed between the parties (Felthouse v Bindley). The fact that Brett did not return the car and continued to drive it around cannot be considered as a valid acceptance either.
Conclusion
To conclude, the silence of Brett is not considered as a valid acceptance neither the fact that he did not return the car and continued to drive it around.
3. Issue
Whether $500 is considered as valid consideration for a contract for the diesel car which is worth $2000?
Rule
Without a valid consideration, a contract cannot be formed between two or more parties. It is referred to the bargain of a contract in which one party received a profit and another party suffers a detriment. There are certain elements which are necessary to consider a consideration valid in a contract. One of the key elements of a valid consideration is that it must be sufficient; however, it did not need to be adequate. The adequacy of the consideration in a contract is not relevant which is not evaluated by the court. This was shown in Chappell & Co Ltd v Nestle & Co [1960] AC 87 case in which the court provided that adequacy of the consideration is not evaluated by the court while determining whether it is sufficient or not (Abrahamson, 2014).
Application
In the given case study, Peter decided to sell his car to Brett which was worth $2,000. He decided to sell his car for $500 to Brett since he thought that Brett would not accept it as charity. As discussed in the case of Chappell & Co Ltd v Nestle & Co, the adequacy of the consideration is not considered as valid. Based on this judgement the consideration of $500 for the diesel car which is worth $2000 is considered valid.
Conclusion
To conclude, payment of $500 for the car which is worth $2,000 is considered adequate in this scenario.
4. Issue
If the judge convinced that an agreement is formed between the parties, then whether Peter has the right to terminate such contract based on the fact that he mistakenly believed that Peter has a petrol car?
Rule
A mistake is referred to a belief which the contractual party has when in fact it did not specify by another party. A mistake is also considered as valid when a party ignores stating the true state of the affair while forming a contract with another party. The legal principle of mistake is narrow which means that it only related to underlying, fundamental and fact in the contract. Based on mistake, a contract can be constituted as void because the parties agree to two different things; therefore, a contract cannot be formed. There are three types of mistakes which include common, mutual and unilateral mistake. Unilateral mistake is occurred based on mistake of one party. There are two categories of unilateral mistake which include mistake as to identify and mistakes relating to terms of the contract. In the case of Hartog v Colin & Shields [1939] 3 All ER 566, the court provided that if the claimant realised that a mistake had been made, then the contract is considered as void. The court agreed to set aside the contract in this case based on the mistake of the party (Turner, 2013).
Application
In the given case study, Brett through that all Peter’s cars was Petrol, whereas, Peter wanted to sell his diesel car. Although Brett wanted to purchase the car of Peter, however, he did not know that it is a diesel car. A contract which is formed on a mistake can be set aside by the court, and the contracting parties have the right to terminate their legal obligations. As per the judgement of Hartog v Colin & Shields case, Brett has the right to terminate the contract based on his unilateral mistake which he made regarding the fact that Peter’s car is petrol.
Conclusion
To conclude, if the court is convinced that an agreement is formed between Peter and Brett, then Brett has the right to terminate such agreement by relying on unilateral mistake.
References
Abrahamson, M. W. (2014). Engineering law and the ICE contracts. Florida: CRC Press.
Chappell & Co Ltd v Nestle & Co [1960] AC 87
Cohen v Cohen (1929) 42 CLR 91
Felthouse v Bindley [1862] EWHC CP J35
Graw, S. (2012). An introduction to the law of contract. Toronto: Thomson Reuters.
Hartog v Colin & Shields [1939] 3 All ER 566
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford: Oxford University Press.
Parker v Clark (1960) 1 All ER 93
Turner, C. (2013). Contract law. Abingdon: Routledge.
Yeen, J. M. C. (2015). The Sound of Silence–An Analysis of the Incorporation of Arbitration Terms after Contract Formation R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521. Asian International Arbitration Journal, 11(1), 93-104.

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