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MLC707 Commercial And Corporations Law
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MLC707 Commercial And Corporations Law
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Course Code: MLC707
University: Deakin University
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Country: Australia
Question
Group Assignment Question
Gareth operates a car hire and event organization company. He had entered in to a profitable contract with two tour operators in Melbourne i.e Visit Victoria and Peninsula Tours. The tour operators use the cars for taking their high end customers on a sightseeing tour of Victoria’s top tourist attractions. He is also expanding his business. Over the course of the contract the following events happen.
1. The following happened in regards to the contract with Peninsula Tours. The agreement stipulated the provision of five cars with drivers every day. Due to resignation of drivers and breakdown of some of the cars, Gareth informed Peninsula Tours that he can only provide three cars per day while he recruits additional drivers. Gareth goes ahead and gets the cars fixed and hires additional drivers. He spent nearly $7000. However, after two months Peninsula Tours demanded payment of compensation for the two cars not provided totalling $1200. Is Gareth under legal obligation to pay the compensation? What if Peninsula Tours changes its mind and decides to take the three cars only after Gareth had spent considerable amount of money for fixing the two cars and hiring drivers?
2. In addition to his tour operation business, Gareth also owns an event organisation business. One summer he organised a music concert at a winery in Yarra Valley. For this purpose he hired a Melbourne based Event Rental Pty Ltd to provide large tents, portable stage, electrical sound systems and marquees. Two days before the event, a car delivering the equipment was involved in a serious accident and the delivery items were destroyed. The singer refused to sing given the sub- standard sound system that Gareth brought at the last minute from a neighbouring wine estate. Julie who travelled from inter-state for this occasion to celebrate her birthday is seeking a compensation for the disappointment she suffered in addition to refund. She is seeking $1000 for the disappointment and a refund of $800. Discuss the rights and obligations of the parties in light of the law.
Answer
2. Issue
whether the failure of Gareth to fulfill his promise to provide cars will entitle Peninsula Tours to make a legitimate claim of $1200
Can Gareth seek any remedy against Peninsula Tours if it accepts three cars after he had incurred expenses for its repair and recruiting drivers?
Relevant legal rules
Exemption of Promissory Estoppel
The concept of promissory estoppel is defined as an equitable doctrine that prevents a person from refuting a promise that the person had made earlier. This concept had been further reaffirmed by the court in the landmark case of Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761. In order to make successful claims under the concept of promissory estoppel, certain requirements must be satisfied. Firstly, the promise made by the person must be clear and unambiguous. Secondly, there must be an existence of contractual obligation, which has been subjected to modifications. Thirdly, there have been certain circumstantial changes with respect to both the parties (Barnett and Oman 2016). Lastly, the court must be satisfied that denial of the promise shall be inequitable. In the Tool Metal case, the court held that it is crucial to establish such elements to succeed in the claims.
However, there are circumstances under which the court may reject the claims made under the doctrine of promissory estoppel. In Conbe v Combe [1951] 2 KB 215, a husband failed to fulfill a promise that he made to his wife. The promise was related to certain payment whih was to be made to her but he failed to execute the promise. The wife initiated legal proceedings against him stating that doctrine of promissory estoppels shall be applicable in this situation as failing to make such payment; her husband cannot deny that he had promised to fulfill such promise. Nevertheless, the court rejected the claim stating that the concept of ‘promissory estoppel’ doctrine shall not be granted under such circumstances, as this legal principle can be used as ‘sword and not as a shield’ In other words, the court explained that this legal principle can be used as a defense but not as a ground to make any claim. Furthermore, the other ground for which the court did not grant the claim was that it did not include any modification in the contractual promise that existed between the parties (Fried 2015). This case is significant as it recognizes the importance of all the elements that must be established to make a successful claim.
The other requirement, which states that the doctrine shall only be applicable if it amounts to ‘inequitable’ between the parties. This requirement has been further established in the case of D&C Builders v Rees [1966] 2 WLR 28. It was established that in case of either parties take an undue advantage of the position of the other party, the doctrine cannot be applicable when its application shall result in inequitable.
The significance of the doctrine was further explained in the landmark case of Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972] AC 74. In this case, a contract was required to be paid by means of pound and sterling. The seller mistakenly sent an inaccurate invoice, which included payment in the form of Kenyan shillings and showed equal value of both the currency. The buyer did not make any objection and accepted the inaccurate invoice as well the delivery accordingly. Later, with a fall in the value of the pound, the buyer claimed that payment be made by means of sterling as it was mentioned within the contract. In respond to the legal claim brought against the buyer, the court held that the acceptance of the invoice was clear without any ambiguity, which amounts to implied promise regarding the acceptance of the contractual terms.
Part Payment of debt is inadequate consideration
Any payment that has been made partly to fulfill the debt cannot be considered as an adequate consideration and this principle was established in the landmark Pinnel’s case [1602] 5 Rep 117. The court in this case held that the plaintiff is entitled to make necessary claims for the outstanding amount of the debt that the defendant has owed to the plaintiff. This claim can be made even if the plaintiff has promised not to make any further claims for the outstanding amount that the plaintiff owes and the defendant has only partly paid for it.
Part payment is an inadequate consideration but is subjected to an exception, where it is considered as adequate consideration provided the payment have been made prior to the date of the actual payment. Under such circumstances, the promise shall be considered as valid (Cartwright 2016).
Application
On the facts here, Gareth and Peninsula Tours have entered into a contract where Gareth made a promise to provide five cars to Peninsula Tours. However, Gareth could not fulfill his promise because his cars broke down and required to be fixed. Further, the drivers of tehcars also resigned which require him to recruits new drivers. Hence, he stated that he will be able to provide peninsula with only three cars presently instead of five as was mentioned in the contract. Under these circumstances, the principles stipulated in the Pinnel’s case can be applied.
The promise made on art of Gareth to provide lesser cars than the stipulated amount does not amount to any additional consideration which entitles Peninsula Tours to claim damages for the loss that Peninsula Tours will suffer due to non- performance on part of Gareth. In the absence of additional information additional consideration that is provided by Gareth, it can be inferred that Peninsula has legal rights to make claims for non-performance of the contract against Gareth.
Nevertheless, if the legal principle in Combe v Combe [1951] be applied in the given circumstances, there was a pre-existing contractual duty between Gareth and Peninsula Tours due to the responsibility of Gareth to provide the Peninsula Tours with five cars. However, there was an amendment in this duty due to change in the circumstances where the cars broke down and the drivers resigned. Gareth informed Peninsula Tours about the changes in the circumstances and informed that he will only be able to provide three cars to Peninsula instead of five. Moreover, Peninsula Tours made acceptance without making any objections. Under such circumstances, Gareth may use the doctrine of promissory estoppel in her defense.
The second issue that was related to the legal remedies to which Gareth could be entitled in case the Peninsula tours accepted three cars after Gareth has repaired the cars and recruited new drivers, the doctrine of promissory estoppel may be applied again. As was stated by the court in Combe’s case that the doctrine can be used to defend a claim but not as a ground to make any claim under the doctrine. Further, based on the decision given in D&C Builders’s case, if permitting a person to go back to his promise results in inequitable, the doctrine shall notbe applicable under such circumstances. In this case, Peninsula tours had expressly or impliedly accepted the delivery of three cars when Gareth told about the damage caused to his car and resignation of drivers had left hi with no option but to provide with only three cars to Peninsula Tours.
Conclusion
In regards to the issue, it can be inferred that Gareth may use the doctrine of promissory estoppel in his defense against the claim of $1200 from Peninsula Tours. However, Gareth shall not be entitles to make any claims against Peninsula Tours for non-acceptance of the cars.
3. Issues
The issues identified after analyzing the facts given in first scenario includes:
what is the contractual position of Gareth with respect to the Event rental Pty Ltd
what is the contractual position of Gareth with respect to the singer
Can Julie make any claims under the given circumstances
Relevant legal rules
In contract law, a contract may be discharged through the doctrine of frustration. The doctrine enables the contracting parties to discharge the contract. A contract is a frustrated contract when the change in circumstances with respect to the parties have taken place after the formation of the contract and such changes makes it impossible for the parties to perform the contract (Andrews 2015). The change in the circumstances must be such that it is beyond the control of the contracting parties which makes the performance impossible and does not lead the contract to achieve its commercial purpose. In the event, a contract is discharged on the ground of being frustrated contract, both the contracting parties are discharged from their contractual obligations and bars them from making any claims for the breach of contract in the future.
In the landmark case of Taylor v Caldwell 3 B & S 826, the court held that a frustrated contract implies that the subject matter of the contract cannot be achieved due to the change in the circumstances of the parties which were beyond the control of such contraction parties. In this case, the plaintiff hired a music hall for a unction in exchange of significant amount but the hall was destroyed in fire prior to the occurrence of the function. The court rejected claim made by the plaintiff for her loss as the contract amounted to a frustrated contract which is incapable f achieving its commercial purpose.
In Codelfa Construction Pty Limited v SRA of New South Wales (1982) 149 CLR 337, the court has applied the test that would determine whether the contract was frustrated contract or not. In this case, the plaintiff was prevented to carry out work at a specified time based on the local council laws subsequent to the formation of the contract. This cause delay in the completion of the project and the court held that the contract amounts to a frustrated contract.
Nevertheless, certain circumstances exist wherein a contract is not regarded as a frustrated contract. Such circumstances include conditions where a contract has become difficult to be carried out or has become more expensive owing to the fault of contracting parties, it shall not be considered as a frustrated contract (Stone and Devenney 2017). The parties shall be held responsible for making the contractual obligations difficult to be carried out and such difficulty was foreseeable along with the presence of a Force majeure clause within the contract.
Further, in Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 9, the court clarified that mere difficulty in performance of the contract shall not render it as a frustrated contract. In this case, the parties were capable of performing the contractual obligations without resulting in any damages. The changing circumstances must be such that it will not be possible to achieve the commercial purpose of the contract apart from being difficult to perform the contractual obligations (Andrews 2015).
Application
As per the given facts, Gareth has entered into a contract with Event Rental Pty wherein the event company was obligated to provide portable, large electric sound marquees and sound systems. However, due to the accident that took place two days prior to the occurrence of the program, the company failed to provide Gareth with the required equipments that was necessary to organize the program. These facts renders the contract as frustrated and the parties are likely to be discharged from their future contractual obligations.
This is because the accident that happened was inevitable and beyond the control of both the contracting parties. Further, it has made the performance of the contractual obligation impossible due to the change in the circumstances. Thus, the discharge of the contract shall disentitle both the parties from making any future claims with respect to breach of the contract. The parties shall not be able to make any claims regarding the breach of the contractual obligations against each other on the grounds of frustration of contract.
In the given case, the accident was caused without any fault on part of either the contracting parties to the contract. This implies that the parties could have foreseen neither the accident nor the cause, which led to the occurrence of the accident. Therefore, it was not possible for either parties to control the accident which satisfies another requirement that the change in circumstances of the parties was beyond their control and they could not avert it. The other requirement that such change in the circumstances shall make it impossible for the parties to complete the contract and the contract shall not be able to achieve its commercial purpose. Thus, under the given circumstances, the doctrine of frustration has been effectively applied which renders the contract as discharged.
In regards to the second issue, Gareth entered into a contract with the singer who was hired to sing on the day of the event. The singer refused to sing as she did not find the sound system to be appropriate. Due to the discharge of the contract between Gareth and Rental event, the good quality sound system was not provided and Gareth had to arrange for a sound system that was of poor quality.
Under such circumstances, the singer may bring legal claims on the ground that she will not sing in the program as the sound system with which she was supposed to sing. Since a good sound system was not available, the contract formed between the singer and Gareth amounts to an frustrated contract and should be discharged.
However, the court shall not accept the claim as mere difficulty in performance of the contractual obligations shall not render a contract as discharged as was mentioned in the case of Tsakiroglou & Co Ltd. The singer may use the new sound system and carry out the contractual obligations. Since, the singer did not sing with the new sound system, Gareth may make a valid claim for breach of contract against the singer.
Further, Julie has traveled inter-state only to attend the show but could not as the program could not be held. This also amounts to discharge of the contract between Gareth and Julie. Julie may only rescind the contract in the form of a refund for $800 but no additional compensation.
Conclusion
The contract between Gareth and Rental Event Pty Ltd has been discharged on grounds of frustration of contract.
Gareth may make a claim against the singer from breaching the contract
Julie may only rescind the contract and can claim only refund of $800 but no additional expenses.
References
Andrews, N., 2015. Contract law. Cambridge University Press.
Barnett, R.E. and Oman, N.B., 2016. Contracts: Cases and Doctrine. Wolters Kluwer Law & Business.
Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil lawyer. Bloomsbury Publishing.
Codelfa Construction Pty Limited v SRA of New South Wales (1982) 149 CLR 337
Conbe v Combe [1951] 2 KB 215
D&C Builders v Rees [1966] 2 WLR 28
Fried, C., 2015. Contract as promise: A theory of contractual obligation. Oxford University Press, USA.
Pinnel’s case [1602] 5 Rep 117
Stone, R. and Devenney, J., 2017. The modern law of contract. Routledge.
Taylor v Caldwell 3 B & S 826,
Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761.
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 9,
Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972] AC 74.
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