QUESTION
Topic Contract law problems. Word length: 1250 words. Students must answer Questions 1 and 2, with a maximum limit of 625 words for each question.
Question 1. Value: 50% of assignment mark (10% of final mark).
Liam decided he wanted to replace his ageing kitchen in his recently purchased new home in Bondi, NSW. In early August 2010, he called three kitchen manufacturers and asked each of them to inspect his kitchen to provide accurate quotes. All three attended and promised to get back to Liam after doing some calculations and checking the prices of materials and labour.
Kitchen Upgrades sent Liam its quote for $7,700 and Kneebone Kitchens sent its quote for $9,900 with both quotes arriving on Monday 16 August 2010. Liam waited a day or so for Cheapest Ever Kitchens to respond but when he did not hear from them he decided to accept the quote from Kitchen Upgrades for $7,700. The quote stated:
“Enclosed is a quotation for the removal and disposal of your existing kitchen at 50 Grays Street, Bondi NSW and the installation of a new beige laminate kitchen with all appliances for the amount of $7,700 including GST. If the quotation is acceptable and you wish to proceed, please sign the enclosed terms and send a Teaching Period 1, 2012 10
SOLUTION
Answer 1
A contract between two parties arises when an offer is made by one party and it is accepted by the other party. It is solely upon the acceptance of the offer by the party to whom the offer is made that a contract can happen.
For a valid contract it is important that approval of offer is communicated to the offeror and this point was also established in the case of Felthouse v Bindley (1863)7 L.T. 835. Felthouse was willing to purchase horse of his nephew for £30-15 sh and wrote a mail to him and it was also mentioned in the mail that if Felthouse do not get to listen to about the horse he will believe it to be his. There was no answer to this letter by the nephew though there was a communication between the nephew and his auctioneer that he wants to keep the horse in reserve for his uncle and it is not required to be sold by auction. The auctioneer sold the horse by fault. Felthouse filed a case against the auctioneer as he had a notion that he was the owner of the horse. It was held by the court that because nephew had not uttered his acceptance of the offer made by his uncle to Felthouse, it is not a valid contract for lack of acceptance of offer. (Lambris, 2011)
In the present case in our hand Liam replied to the quote of Kitchen Upgrades accepting all the terms as were mentioned in the offer made by Kitchen Upgrades and all also acted as per the terms of the offer but there was a change of his mind as he received another quote from Cheapest Ever Kitchen which was the lowest quote. The letter of acceptance which was sent to Kitchen Upgrades was not yet received by the Kitchen Upgrades as mail were cleared once in a day at 5 PM so in the morning when Liam had change of mind he can write another letter rejecting the offer making sure that it can reach the offeror before the letter of acceptance reaches him bacsue as per law an acceptor i.e. Liam is bound by the contract upon his acceptance being received by the offeror. Acceptance can lapse if there is any counter offer or it is not absolute or unqualified. Acceptance can lapse if there is any counter offer or it is not absolute or unqualified.
Acceptance by way of post
When acceptance is conveyed through post then the acceptance is complete as against the offeror, when it is put into the postal process i.e. when it is out of the power of the offeror. An acceptor is bound by his acceptance when his acceptance of the offer comes to the knowledge of the offeror. For example when A writes a letter to B offering him to buy his bicycle at $1,000, the moment he posts the letter he becomes bound by it. When the letter reaches B he accepts the offer and posts a letter of acceptance to A. B is not bound till the time his letter reaches A and A has knowledge of the contents of the letter.
It is important to discuss the law as stated in Household Fire and Carriage Accident Insurance Co. v. Grant (1879) 4 Ex.D. 216. Grant sent an offer to purchase 100 shares in the Company Household Fire and Carriage Accident Insurance Co. The letter of allotment by the company was never received by Grant. There was a case by the company to recover the balance money as shares were partly paid. The court held that Grant became bound when letter of allotment was posted to him. (clark,2011)
Liam is not bound by his acceptance as it has not yet reached the Kitchen Upgrades and by adopting a faster mode of communication he can reject the offer of Kitchen Upgrades. On the other hand Kitchen Upgrade was bound moment the letter of acceptance was posted to him.
Answer 2
Liam telephoned to Kitchen Upgrades rejecting his offer and stating that he has accepted the offer of Cheapest Ever Kitchen but after few days the acceptance quote and cheque of 10% deposit was received by Kitchen Upgrades. It is an anticipatory breach of contract which means the repudiation of a contract by one party to the contract before the due date of its performance has actually come. For example A, a singer by profession is in contract with B, the manager of a theatre company for two nights every week for another two months. It was agreed that A would be paid $100 per night. On the sixth night of her performance, she got absent from the theatre and now at this time B is in a position to put an end to the contract. Same way it can be advised to Kitchen Upgrades that they can repudiate the contract. But it is up to Kitchen Upgrades to elect whether to keep the contract alive or dead. Breach of Contract by one party does not automatically leads to termination of the contract because the grieving party has the choice to elect either the contract to be alive or dead. In the case of Robinson v Harman (1848) 1 Ex Rep 850 Harman wrote a letter to grant Robinson lease of a house for 21 years for £110 annually. Later Harman changed his mind and refused to complete the lease and it was realized that the property was worth more than £110 per year. It is a classic case and states that if a party to an agreement is incurring loss by reason of breach of contract then the party is required to be maintained at his original position with respect to damages as if the contract was duly performed by the parties.
It is also important to prove whether the damage was remote or proximate cause of the acts of the accused party. This position was set at rest by Hadley v. Baxendale (1854) 9 ex. 341, at 354 the facts of the case are as below:
The mill owners gave broken crankshaft to a carrier agency to carry it to Greenwich. It was not informed to the carriers that the mill does not have any other crankshaft because of which the work of the mill was stopped completely. The carrier was just aware that the crankshaft can be repaired only in Greenwich. Because of the carriers negligence it was delayed and the crankshaft could be repaired on time. During all this time the mill was completely close and incurred losses. Mill challenged the carrier because of the profits it could not earn in the prolonged absence of the crankshaft. Court held that millers can claim only the compensation for the delay caused in taking the crankshaft to Greenwich and not for the profits not being earned. Delay is a proximate cause of loss but not earning profits is a remote cause.
The rules as derived from the Hadleys v. Baxendale case are as below:
(1) Those damages can be claimed by the suffering party which are the natural consequence of the acts of the other party i.e in the usual course of things; and
(2) Those damages can also be claimed which could have been contemplated by the parties at the time of entering into the agreement.
The cheque of 10% deposit as sent by Liam cannot be now refunded to him as it now the discretion of Kitchen Upgrades the keep the contract subsisting or repudiate it.
Cases Referred
1. Felthouse v Bindley (1863)7 L.T. 835
2. Household Fire and Carriage Accident Insurance Co. v. Grant (1879) 4 Ex.D. 216
3. Robinson v Harman (1848) 1 Ex Rep 850
4. Hadley v. Baxendale (1854) 9 ex. 341
References:
1. Lambiris, M. 2011. First Principles of Business Law. Sydney: CCH Australia
2. Julie Clark, Australian Law, viewed on 27th april 2012, www.australiancontractlaw.com
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