Business Law – Case Study Essay
Business Law – Case Study
John wanted to extend his house and built an office from there. He approached Sue after locating an advertisement from the Yellow Pages.
As Sue’s price did not seem reasonable, John then approached Drawit Pty Ltd, which charged a hundred dollar less. John paid a deposit.
Later, John went to Franks Hardware and Timber Yard. He made known to Frank, the sole proprietor, the purpose and requirement of the materials and placed an order. John signed a standard form contract and paid a deposit.
Two months later, problems arose which caused John to delay his business. John incurred financial losses.
B.IDENTIFYING THE ISSUES
1.0CONTRACT BETWEEN JOHN & FRANK.
It is obvious that there is a contract for the sales of goods between Frank and John. Therefore, terms implied by statute into the sales of goods will only be relevant here.
1.1Is it a consumer or non-consumer contract?
Here, we need to consider the definitions of consumer both under Trade Practices Act (TPA) and Goods Act Part IV (GA-IV).
As the total price of the goods is $20,500, it is under the TPA s4B(1) (a)(i) prescribed limit. Having satisfied this, we need to consider s4B(1) (a)(iii). There is no evidence showing that John had acquired the goods for the purpose of re-supply or transform them. It might be a consumer contract under TPA.
$20,500 exceeds the threshold amount under GA-IV s85(1) (a). John then needs to satisfy s85(1) (b). His materials were of a kind that is ordinarily acquired for personal consumption. Moreover, s85(1) (c) and (d) did not apply. Therefore, it might also be a consumer contract within s85 of the GA.
A consumer contract subjects either to TPA or GA-IV means that Goods Act Part I do not apply.
1.2 TPA or GA-IV?
A seller must be a corporation to be under the TPA. As Frank Hardware is a sole proprietor, it therefore is not subjected to the TPA. It then must fall under GA-IV. GA-IV applies to all consumer contracts for the sale of goods that take place in the course of business, irrespective of whether the seller is a corporation, a partnership or a sole trader.
1.3What are the Implied terms that are breached?
(i)GA-IV s(90) Fitness for particular purposes
John had a contract with Frank for the supply of materials and the sale took place in the course of a business. John made known the purpose for which the goods were required and had relied on his skill and judgement in choosing the appropriate materials. It was also reasonable for John to rely on Frank. Therefore, there is an implied condition that the materials supplied be fit for that particular purpose.
However, the materials were not of the purpose for which it was supplied. This implied term had been breached.
(ii)GA-IV s(89) Merchantable quality
As the materials were sold in the course of a business, there is an implied condition that the materials be fit for their normal purpose(s) having regarded the price.
When the materials were delivered, the pine is not limed and the oregon beams have unsightly knots. John was not aware of the defect before the sale and if John had inspected the materials before sale it would not have revealed the defect. This is because John did not know that he actually had to lime the pine himself and the knots on the beams might not be easily seen. Therefore, there is evidence that this implied term had been breached.
1.4What is the effect of exclusion clause?
As the materials bought by John is a kind normally acquired for personal consumption, Frank cannot rely on the exclusion clause to exclude his liability. This is evidenced by GA-IV s95(1).
1.5What are the remedies available?
John can terminate the contract and sue for damages. This means that he may return the materials and receive a refund. However, the goods must be returned as provided by s99 that as long as the defect becomes apparent within a reasonable time after delivery, the goods may be returned within reasonable time after discovering the defect. John may also receive compensation for losses caused by the breach of implied terms.
2.0CONTRACT BETWEEN JOHN & SUE.
2.1Offer or Invitation to Treat?
First, we need to distinguish offer from invitation to treat. An invitation to treat is an invitation to others to make an offer. Generally, an advertisement amounts to an invitation to treat. This is held in Partridge V Crittenden  2 All ER 421, where Sue will be inviting John to make an offer.
However, there is an exception. An advertisement can also be an offer. This can be illustrated in Carlill V Carbolic Smoke Ball Co  1 QB 256 in which Sue might probably argue that it was an offer. This being the case, Sue is the offeror will stressed that the offer was assumed to be accepted by John upon saying “ I think that’ll be okay ”. An offer, once accepted, cannot be revoked. Therefore there will be a binding contract.
Assuming that it is an offer, it can either be a counter offer or a mere request for more information.
2.2Counter Offer or Mere Request for More Information?
An offer will be rejected if there is a counter offer. A counter offer tampers with the original condition of the offer, it rejects the original offer and can no longer be accepted at later date. Looking at the words used in John’s reply “ I hadn’t expect it to be so high ”, it is possible that this was either an acceptance with a request for more information, or a counter-offer.
If the court found the facts here sufficiently similar to those in Stevenson Jacques V McLean (1880) 5 QBD 346, it could hold that the words were a mere request for information. This being the case, the offer remains open and can be accepted.
Another alternative is that the court might hold that John’s reply amounts to a counter offer as it seems to add new terms to the offer. This would be similar to Hyde V Wrench (1840) 3 Beav 334, in which the counter offer involved a reduction in price. As in that case, the counter offer made by John had the effect of destroying the original offer made by Sue. Sue is then free to accept or reject this counter offer. Sue, by quoting the price of $1500, clearly shows that she had accepted the counter offer and made a new offer. It is now up to John, the offeree, to accept or reject the offer.
2.3Acceptance or Rejection?
Sue could rely on the fact that the mode of communication is instantaneous, i.e. a telephone conversation. She will argue that John’s response over the phone is assumed to be an acceptance to the new offer. This forms a contract in which she can argue that it had been breached.
REMEDIES FOR SUE (Damages)
However, John can argue that there was no contract because his response failed to satisfy the rule that an acceptance must be absolute and unqualified. In fact, it’s a statement of his opinion of what he thought and therefore he reserved the right to change his mind. An offer, which had not been accepted, does not form a contract. Therefore there is no breach of contract and that he did not have to pay the pro rata amount requested by Sue.
REMEDIES FOR JOHN (Do not have to pay)
Having considered both sides of the argument, it is more likely that there is a contract between John and Sue. And that it is a breach in which John had to pay.
CONTRACT BETWEEN JOHN AND DRAWIT.
It is clear that there is a service contract in which Drawit is to provide a plan for John. Due to the fact that terms implied under Statute only apply to consumer contracts, we need to determine if one exists in order to enforce the implied terms.
3.1Is it a consumer contract?
To illustrate whether it is a consumer contract, we need to compare the definition of consumer under Trade Practices Act (TPA) and Goods Act Part IV (GA-IV).
s4B(b) (i) of the TPA required that price of the service be less that $40,000. If it exceeds that amount, it must be a kind ordinary acquired for personal use. s85(a) of the GA-IV restricted that amount to be under $20,000. Similarly, if exceeds that prescribed amount, it must be for personal consumption.
Given the service price of $1,400 and that John had acquired it for personal use, it is obvious that it falls under both the TPA and GA-IV. Therefore we know that there is a consumer contract. We then need to identify which of the Acts it falls into.
3.2TPA or GA-IV?
TPA probably applies because there is evidence that Drawit is a corporation. This can be recognised by the ‘Pty Ltd’ in Drawits’s company name. Having recognised that it subjects to TPA, it is obvious that GA-IV does not apply.
3.3What are the Implied Warranties that have been breached?
As Drawit provide the similar service as Sue, we assumed that John had also made know the purpose for which the plan was required and that relied on the seller’s skills to perform the service.
(i)TPA s74(1) Due and skills
Drawit supplied the services in the course of a business, so there is an implied warranty that the service will be rendered with due care and skill. The material supplied (plan) in connection with the service must also be fit for the purpose for which they are supplied.
It is obvious that Drawit had breached this implied warranty because the material supplied was not fit for the purpose, i.e. it did not meet the Council’s standards.
(ii)TPA s74(2) Fitness for particular purposes
Applying our assumption that John had made known to Drawit his requirements for which the services were required and that Drawit had supplied the service in the course of a business. There is an implied warranty that the service and the materials supplied in connection of the service will be reasonably fit for that purpose and that it is reasonable for John in that circumstances to rely on Drawit’s skill.
The plan did not meet the Council’s requirement. This shows that it did not fit the purpose for which the services were required. Therefore there is a breach of this warranty.
3.4Can the implied terms be excluded?
As the service provided is of a type ordinarily acquired for personal domestic or household use. Under s68 of TPA, Drawit cannot exclude or limit the implied warranties.
3.5What are the remedies that are available?
John can terminate the contract and sue for damages. This means that he could get a refund for the services and also receive compensation for the losses caused by the breached of the implied terms.