Contract Assignment Essay Example

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    Law
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    Essay
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    Undergraduate
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CONTRACT LAW ASSIGNMENT

Question 1 Draft Memorandum

Florick and Argos Associates

Prime Road

Rivera, Sydney

May 27th 2014

File No: 55679

To Buyer,

RE: Sale Agreement Involving the Sale of the Van by Seller

The case arose out of the following facts. On the 1st of October Buyer saw a van with a FOR SALE sign with a telephone number and a price of $25,000 and on that day, Buyer called the seller explaining that he would get the money next week. Seller agreed telling buyer to mail a cheque for $5,000 and the balance paid by 1st November and Buyer did as instructed. Following the transaction, Buyer got investor to loan him $20,000 after explaining the document courier service business and had spent on $1200 on business cards, cellular phone and flyers with a projected profit of $50,000 in first year. On the 25 October when Buyer called to pick the van, seller said that someone had offered $35,000 for the van and would only give him the van if he paid seller $20,000 plus $400 a month for 25 months. This meant that buyer could no longer start the business.

A sale of goods contract is defined as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for monetary consideration that is the price (Sealy & Hooley, 2009). When the goods are transferred to the buyer by the seller, then the agreement will be considered a contract of sale, however when the goods will be transferred or take place at a future time, then it is an agreement to sell. Section 2 of the Sale of Goods Act defines goods to include ships aircraft and other vehicles and in this case a van is a good under the Sale of Goods Act. In order to determine whether the Buyer had potential claims, then one must consider whether the property had passed to the Buyer. The general rules of contract law, apply to sale of goods agreements and this include, offer, acceptance, consideration and the intention to create legal relations as well as the principles of termination by breach or lapse of contract apply (Gibson & Fraser, 2013).

An offer as defined in contract is the intention of a party to be bound by the contract or agreement. Once an offer is made by the buyer in a sale of goods agreement, then the seller needs to communicate acceptance of that offer as applied in contract law in the case of Entores v Miles Far East Ltd [1995] 2 QB 32. The implied terms in a sale of goods agreement is that for contract for the sale of specified ascertained goods, then the property is transferred as agreed by the parties under section 22 (2) of SOGA. However under section 23 of SOGA in ascertained goods then the property passes to the buyer when the contract is made and it is immaterial whether the time of payment or the time of delivery or both is postponed. Hence, there was a binding contract between Buyer and Seller on the Buyer sent a cheque to seller and paid the purchase price.

In contract law, there is a requirement that the Seller communicates termination of the contract to the buyer that is where there is clear chance that there is anticipatory breach of the contract as held in Bot v Ristevski [1981] VR 120. Where no notice is issued for termination of sale agreement, then a buyer can continue to treat the contract as binding.

In this case, the Buyer and a Seller had created an agreement of sale contract. That is the seller was to deliver the van to the buyer. The buyer on the other hand had to pay the full purchase price by the 1st of November, but the seller on the 25th of October is negotiating the sale agreement under new terms which is in breach of the previous agreement. The Seller in this case had failed to communicate the termination of offer or acceptance and therefore the sale agreement is considered as binding on the parties.

What are the potential claims against the seller?

The potential claims against the seller in this case are one action for breach of contract. There is a valid contract and that the Buyer had already given the consideration, part of the purchase price and therefore the act of the Seller are contrary to the agreement. The breach of contract herein is as contemplated under section 6 of the Sale of Goods act that is creation of an agreement to sell.

The other claim would be an action for breach of seller’s duties. There is an implied duty imposed on the seller to deliver the goods actual, constructive or symbolic delivery of price (Sealy & Hooley, 2009). It is material that upon payment of the price of $5000, the seller ought to have been ready to part with the possession of the goods, but failed to do soon as the down payment was made by the buyer.

What are the potential defenses?

The seller can defend the claim by claiming seller’s lien. This is whereby the unpaid seller has the possession of the goods and retains the goods until the payment is made (). The seller can argue that since the full purchase price of $20,000 had not been paid and that the 1st of November deadline had not lapsed.

There is real likelihood that the Seller may claim that he or she was merely exercising their right of resale as was held in the case of Style Finnish Qd Pty Ltd [1994] 2 qd R 203. That is since the seller possesses the title, he has the freedom to sell it to another potential buyer.

Who is likely to prevail in the even the case goes to court?

Determining who is likely to win or lose in the court entirely depends on the merits of the case, how persuasive and compelling the reasons and authorities given convinces the judge that Buyer or Seller will win. However in this case, there is a prima facie evidence that Buyer is likely to win in the event the dispute goes to court for a full hearing. These are my reasons that the Buyer is likely to win.

Firstly that there was a contract in the form of a sale agreement as defined under section 6 of the Sale of Agreements Act (SOGA), that is a contract for the sale of goods in which the transfer of goods will be passed at a particular time in fulfillment of the conditions. There is clear evidence that Seller had created an impression that he or she would sell the van to Buyer after stating that “If you want the van, mail me a cheque for $5000. Pay the balance by 1 November”. Since the Buyer fulfilled the instructions issued by the Seller then there was an implication that the parties intended to be bound by the agreement and that there was adequate offer and acceptance.

Secondly, there was no termination of the contract. The Seller failed to notify Buyer about the new offer and the intention to terminate the sale agreement.

What if the buyer prevails, what damages is Buyer likely to receive from the court?

The damages awarded by the courts to Buyer may be damages for non-delivery. The damages awarded in this case as held in the case of Melachrino v Nickoll & Knight [1920] 1 KB 693 that the measure of damages is estimated by the loss occurring directly or naturally resulting from the sellers breach in the ordinary course of business. In this case, from the breach and reliance of delivery, Buyer had anticipated creating a business that would earn him $50,000 in profit in the first year, but because the van will not be delivered, then the business will not start.

The conditions set forth for a claim to succeed, the party claiming damages in this case buyer must prove that:

  1. That there was indeed a valid contract creating legally binding obligations on the parties;

  2. That there was default or breach by Seller;

  3. That there indeed existed a reliance and as a result, there was loss following reliance on the expectation;

  4. There was a direct causal link between Seller’s default and breach with the loss or damage incurred by buyer (Gillies, 2004).

Common law principles clearly state that the loss which is direct and it is not remote to that particular breach is compensated (Latimer, 2009). In determining whether the loss of profits is awardable, then the court will consider whether as a consequence of breach of contract or non-delivery there was indeed a loss of profit by the buyer. In my opinion, this loss arose out of breach of sale agreement and buyer can be awarded damages for loss arising from non-delivery and any expected profits. In this case, if the buyer can adequately prove reliance on the contract and had actually made arrangements on the reliance that the van would be supplied, then the court will award damages. In this case, Buyer had already found an Investor to loan him $20,000 for the purchase of the van and had spent about $1,200 on cards, flyers and cellular phone hoping to start the business when the van was delivered.

Damages are also awarded in cases of breach of the entire agreement. At the onset, there was a sale agreement created after they down payment was made by the buyer, this meant that there was indeed a binding agreement to sell

References

Gibson, A. & Fraser, D. (2013). Business Law, 7th ed. Sydney: Pearson Education Australia

Gillies, P 2004, Business Law, Federation Press, Sydney

Latimer, P, 2012, Australian Business Law. 31st edn, CCH Australia Limited, Sydney

Sale of Goods Act

Sealy, L.S. & Hooley, R.J.A. (2009). Commercial Law: Text Cases and Materials, 4th edn, Oxford: Oxford University Press

Sweeney, B. and O’Reilly, J. Law in Commerce, Sydney: LexisNexis Butterworths, 2004.