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LAW101 Business Law Assignment Help

Question 1 

Flyways Airlines Ltd signs a contract with Boeing Corporation Ltd for Boeing to build a new aircraft. On average, Flyways would make $500,000 profit per day from using such an aircraft. The contract has 678 terms. Term 65 says that the plane must be able to travel 9,000 km at 700 km per hour. Term 457 says that the aircraft must have an in-flight video system capable of showing 27 channels of entertainment to passengers. After the contract is signed, Boeing sends to Flyways a package containing a large number of documents, including the contract itself and examples of the color scheme that will be used. In the middle of these documents there is also a new document headed ‘Liability Limitation', the key part of which states as follows:

The liability of Boeing Corporation Ltd for breach of contract is capped at $400,000. When the plane is delivered, its engines are as required, but, due to confusion at the factory, the wrong software has been loaded into the entertainment system, which has only 21 channels. It would take a week to re-configure the software. Advise Flyways Airlines fully as to what its legal position is, citing relevant case law.

Question 2 

Bob runs a company which manufactures and sells computer equipment. He relates the following set of facts to you: On 1 January Bob receives an email from Mike Jones which reads: "I offer to purchase 30 Toshiba Satellite laptops for $ 300 each, inclusive of GST, delivery and insurance". In response, on 2 January Bob sent an email to Mike saying "I accept your offer, but the price would have to be $300 plus GST. On 3 January Mike sends an email back saying "No, I can't agree to that". On 5 January Bob then sends an email saying "OK, I accept your offer of 1 January", however when he sends the computers to Mike with an invoice for $9,000, Mike sends the computers back and refuses to pay for them, saying that he has purchased computers elsewhere.

2 On 10 January, Bob sends a letter to Tom stating "Please send me 200 Pentium 5 hard- drives at $50 each". On 12 January Tom puts a letter into the post stating "OK - I will deliver the hard-drives before the end of the month. Bob subsequently finds that he no longer needs the hard drives, and on 14 January sends Tom an email saying "Please cancel my order of 10 January". Tom's letter reaches Bob on 15 January, and the hard- drives are delivered a few days later with an invoice for $10,000, which Bob refuses to pay.

Steve has done favours for Bob, such as looking after Bob's cat when he (Bob) went on holiday. On 1 February, Steve says to Bob "I need a new computer for my travel agency". Bob says "OK, because you looked after my cat, I'll give you a new computer". Bob then changes his mind and says to Steve: "Sorry, mate, trading has been bad these last few weeks - I just can't afford to give you the computers".
Bob is thinking of buying a delivery van. He has been in negotiations with Capital Motors, whose sales manager is Mary. One Monday morning he sees a form sent by Mary in which she offers to sell him a Toyota Hilux 3000 automatic with air conditioning for
$33,000. The top sheet of the form contains a line which says "I agree to the purchase of this vehicle as specified in this document" and with a space for a signature and date.

Bob sets the document aside on his desk, and it soon gets mixed up with piles of other paperwork. Later during the day, he signs the form, thinking that it was the front page of another contract he had been sent by a supplier of microchips. He gives it to his office manager, Tim, and says "Send this by fax". A few days later he receives a call from Mary asking him when he will pick up the vehicle. He tells Mary that he did not order a vehicle from her. When Mary tells him about the fax, he realizes what happened and tells her that he had sent it by accident and that he never intended to agree to the contract. She says "Too bad, we have a deal - I have already ordered another vehicle to replenish my stock". Assume that you are Bob's legal adviser and that he has asked you for legal advice. Advise him as what contractual liability, if any, he has in the above circumstances, citing relevant statute and case law authority.

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Question 1

The Liability Limitation clause that liability of Boeing will be capped at $400,000 is null and void because it was not there in the contract that was signed. After the contract was signed, Boeing sent Flyways a package containing a large number of documents. These documents included the signed contract and a color scheme. In the middle of this scheme, there was a new document titled, ‘Liability Limitation.' This document stated that for any breach of contract, the liability of Boeing would be limited to $400,000. Since this clause was not there in the original contract that was signed, this clause is not part of the contract signed between Flyway Airlines Ltd and Boeing. Therefore in case of a breach of contract, the liability of Boeing can be more than $400,000.

If the Liability Limitation clause was part of the contract that was signed between Boeing and Flyway then this liability limitation would have been valid and enforceable. In this case, no matter what the breach of contract is, Boeing would not pay more than $400,000 for it.
Breach of contract means the violation of a term or condition of the contract (Gibson, 2017). The contract between Flyway and Boeing has a number of conditions. Actually, the contract has 678 terms. One such term, term 65, is that the plane must be able to travel 9000 kilometres at an average speed of 700 kilometres per hour. Another term of the contract, term 457, is that the aircraft must have an in-flight video system. This video system should have the capability to show 27 entertainment channels to passengers. Violation or non-fulfilment of any of these conditions amounts to a breach of contract.

Boeing did, in fact, violate one of the terms of the contract, the term 457. The software in the entertainment system has the capability of showing only 21 channels instead of 27. It would take a week to correct this error. Boeing can be sued by Flyways to cover any losses that are incurred to it because of this error. Flyways would make an average profit of $500,000 per day from using one such aircraft. Therefore if a week is wasted because of this software, then the loss incurred by Flyways will be $ 3500000 ($ 500,000 * 7).

Flyways is within its contractual right to sue Boeing for compensating it for this loss of $3500000. Boeing is also liable to pay for all the cost of making the repair in the software system. Boeing cannot take the Liability Limitation plea because the clause of Liability Limitation was not part of the original contract that was signed between the two parties.

The case of Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 is a landmark case in the area of Liability Limitation (Gibson, 2017). Courts often take the judgment given in this case as precedence for future judgments. In this case, Delco Australia Ltd was the client of brokerage firm Darlington Futures Ltd. In the contract signed between the two parties, Delco, the client, did not give discretionary powers to Darlington to invest the way it seems fit. So any investment that Darlington made on behalf of Delco should be first approved by Delco. There was also an exclusion clause mentioned in the contract. This exclusion clause said that there will be no liability of Darlington for any loss that is incurred while investing or trading on behalf of Delco. There was a Liability Limitation clause too in the contract. This clause said that the liability of Darlington for anything related to the contractual relationship would not be more than $ 100.

Darlington, without taking the approval of Delco, invested its money in many risky trades. This caused a loss of $279, 720 to Delco. Delco brought a lawsuit to recover these losses from Darlington.

The court in its judgment held that all clauses should be interpreted in the context of the contract. Where the meaning of any clause is not clear, the principle of contra proferentem can be applied. This principle means that the clause should be used against the party that made that clause and is now relying on that clause for its defense (Barnett, 2015). The court, therefore, held that the meaning of clauses in the contract should be clear. The court further held that the exclusion clause was applicable only when Darlington traded on behalf of Delco. Since Delco had not given discretionary authority to Darlington, trading on its behalf would occur only when the trade or investment is made after the approval of Delco. But Darlington made the trades that caused losses without taking approval from Delco. Therefore these trades cannot be classified as trading on behalf of Delco. Therefore Darlington cannot take the defense of the exclusion clause that freed it from losses incurred while trading on behalf of Delco.

The Court, however, added that the Liability Limitation clause was valid and enforceable because it did not say that liability will be limited only in the case where Darlington is trading on behalf of Delco (Barry, 2016). The court, therefore, held that Darlington is liable to pay only $100 to Delco.

This case shows that if Boeing had included the Liability Limitation clause in the original contract and this contract was signed by both the parties, then Boeing would only have to pay $400,000 to Flyways for the losses caused because of the error in the software of the entertainment system. But since this clause was not there in the original contract that was signed, Flyways can now sue Boeing for recovering the entire amount of the loss.

Question 2

Bob received an offer from Mike through the email in which he said that he offers to purchase 30 laptops from Bob for a price of $300 per laptop, inclusive of GST, delivery and insurance. In response, Bob wrote that he accepts Mike's offer, but the price will be $300 plus GST. Now Bob here made a counteroffer. A counteroffer means a rejection of the original offer. Therefore Bob's counteroffer means rejection of the offer made by Mike.

In the case of Hyde v French (1840) , the Court held that a counteroffer is a rejection of the original offer (Gibson, 2017). And once the original offer is rejected, it cannot be subsequently accepted by sending an acceptance of the counteroffer is rejected by the other party.
Bob's counteroffer was explicitly rejected by Mike through his mail in which he said he does not agree to the price of $300 plus GST. After that Bob sent a mail saying that he accepts the original offer of Mike made on January 1, with an all-inclusive price of $300 per laptop. He then sends the computers to Mike with the total invoice value of $9000. Mike refuses to pay for these computers and sends them back to Bob, saying he has bought the computers from some other vendor.

Mike has no contractual liability because there was no contract in the first place. Mike does not violate any contractual condition by refusing to accept the computers and not paying for them. When Bob made a counteroffer, he rejected the original offer of Mike and therefore did not enter into any contract with him. When Mike rejected the counteroffer of Bob, the two parties did not enter into any contract with each other. Bob's subsequent acceptance or approval of the original offer cannot be taken as revival of the original offer and establishment of the contractual relationship between the two parties.

Bob sends a letter to Tom making an offer to purchase 200 Pentium 5 hard drives at $50 each, on January 10. Tom accepts this offer by sending a letter on January 12th, saying, that he will deliver the hard - drives by the end of the month. The acceptance by Tom means that both the parties have entered into a contractual relationship.

Now on January 14th Bob sends an e-mail to Tom asking him to cancel his order of January 10th. Tom receives Bob's email on January 15th. He delivers hard drives after a few days time. The invoice is of the value of $10,000. Bob refuses to make payment against invoice.
By refusing to pay, Bob is violating the terms of the contract. Once the contractual relationship was created, Bob cannot end this contractual relationship unilaterally by just sending a mail that he no longer requires or needs the hard drives. The contract can be ended before its performance only if both the parties agree to it. It cannot be ended unilaterally by one of the parties.

In the case of McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, the High Court of Australia held that rescission of a contract does not extinguish or terminate it ab initio (from the beginning) but in futuro (in future only) (McKendrick, 2016). Recession, in this case, would have happened if both the parties agreed to end the contract before its performance. But Tom did not give Bob his acceptance to rescission or termination of the contract. Therefore the original contract, from the beginning, between Bob and Tom remained enforceable. Tom fulfilled his contractual obligation by sending the hard drives to Bob. Bob should now fulfill his part of the contractual obligation by paying $10,000 to Tom. Bob is legally liable to fulfill his part of the contract here.

Steve has done favors for Bob like looking after his cat while he was on holiday. On 1st February Steve told Bob that he needed a new computer for use at his travel agency. Bob said that he would give or provide the computer to him because he looked after and took care of his cat. But later on, Bob has a change of mind. He told Steve that business has been bad for the last few weeks and he could not afford to give him a computer.

No contractual relationship existed between Steve and Bob in this case. One can argue that there was a consideration involved, and therefore, the promise made by Bob to Steve was a contract. Consideration means a thing of value exchanged for the performance of the contractual obligation. Here Bob said that he would give the computer to Steve because he looked after his cat. But this is past consideration. Courts in Australia have held that past consideration is not a consideration for the constitution of a contract. The consideration should occur in future. In this case, taking care of the cat was past consideration because this contractual obligation was performed before the two parties entered the contract.

In the case of Roscorla v Thomas (1842) EWHC J74 (1842) 3 QB 234 the Court laid down the principle that past consideration is not adequate consideration for meeting the requirements of a valid contract (Gibson, 2017). In this case, the applicant or petitioner had purchased a horse from the defendant. After the purchase was complete, the defendant (seller) promised the petitioner (buyer) that the horse was sound and free from any kind of vice. The horse did not turn out to be sound. The petitioner, therefore, brought a suit against the defendant for breach of contract. The court held that the contract was only for the sale of the horse. The promise made by the defendant that the horse was sound and free of any kind of vice was made after the contract of sale was fulfilled. This promise was made not in return for any consideration in future. It was made in return for past consideration. Past consideration is not a good consideration for constituting a contract; the court held. Therefore the promise that the horse was sound and good and free from any vice did not constitute any contract, in the judgment given by the court. Since there was not any contract, the court gave the judgment that the defendant was not guilty of any breach of contract.

Bob too made the promise of giving the computer in return for the past consideration of the care of his cat that Steve provided. This past consideration does not create any contractual relationship between them. Therefore Bob is not bound by any contractual obligation that is legally binding, to provide the computer to Steve.

It is important to look into what constitutes a valid contract under Australian contract law. In order for a contract to exist between two parties there should be an offer; there should be acceptance of the offer; there should be a promise that the offer will be performed in return for a consideration; there should be clear mention of the time when the contract will be performed; and the terms which mean performance of the contract (Carvan, 2016).

Bob wanted to buy a delivery van. He was in negotiations with Mary, the manager of sales of Capital Motors. Mary sent him a form with the offer that she can sell Bob Toyota Hilux 3000 automatic van, with air conditioning installed in it, for $33000. The form had a top-line where it was written, " I agree to this purchase." Below this line, there was also space for signature and date. Bob put this form among other documents on his table. Later in the day, he signed this form, thinking that he was signing another form that was sent to him by a supplier of microchips. His office Manager sent this form by fax, as per the instructions of Bob. A few days later Mary called him enquiring about when he will pick the van. Bob was surprised, and then he realized the mistake that he did. Bob explained his mistake to Mary. Mary said that they have a contract and she has ordered another van to replenish her stock for the vehicle that has been sold to Mary.
Under Australian contract law, a mistake about any aspect of a contract does not give the right to a party to escape or not fulfil its contractual obligations. Even if the mistake committed is a fundamental one that is related to the essence of the contract, it does not give the right to the party that made a mistake not to fulfill her contractual obligations.

The mistake that Bob made in signing the wrong document comes under the principle of Non est factum. Non est factum is a Latin phrase which means that the written agreement is not valid because the party signing it was mistaken about its character when signing it.
The case of Petelin v Cullen (1975) 132 CLR 355 is a landmark case in this area (Gibson, 2017). Petelin could not read English. He signed a document thinking that it was a receipt for $50. The document in fact was one that gave Cullen the option to purchase or buy Petelin's land. Cullen then exercised this option. Petelin refused to sign the sale document. The High Court of Australia accepted the defense taken by Petelin under the principle of Non est factum. The Court in its judgment said that Petelin thought that what he signed as simply to be a receipt of $ 500. The Court also said that Petelin was in no way careless while signing the document. He could not read the document, and therefore, it was not in his capacity to understand the document. The Court further added that even if Petelin was careless, Cullen was not such an innocent person to have no reason to doubt the validity of the signature of Petelin giving him the right to purchase his land. The Court clearly stated that the defense of Non est factum is available only in cases where the party that made a mistake was illiterate or blind and therefore could not read the document. The court placed a heavy burden of proof, in its judgment, on the party that claimed defense under the principle of Non est factum (Carvan, 2016).

Therefore Bob cannot take the defense of Non est factum. He was neither illiterate nor blind. The document was not one the meaning of which he could not understand. He signed the document simply because of his carelessness. The other party, Mary, cannot be made to suffer because of his carelessness. There was also no reason for Mary to doubt the validity of Bob's signature on the purchase form because Bob was in negotiations with her for the purchase of a van. Therefore Bob is legally obliged to take the delivery of the van from Mary. He should pay the price of $33000 to Mary. If he refuses to do so then Mary in all likelihood will take the case to court. The Court is likely to rule in favor of Mary and against Bob.

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