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Business law plays an integral part in the litigation of issues that affect businesses. Businesspersons usually enter into contracts in the course of their businesses, and thus they should be cautious when entering into contracts because business contracts are only valid if they adhere to certain legal requirements that vary from one legal jurisdiction to another. Essentially, business contracts are very complex and delicate, as they should comply with varied laws and regulations, which are essential for them to be enforceable and valid in courts. In this case, Gillies (2004) defines a contract as “An agreement between two or more persons, which is legally enforceable” (p. 137). Hence, for a contract to be enforceable, it must meet several terms and conditions that are critical for its validity. Contract law ensures that parties involved in businesses do not breach the terms and conditions of the agreement in a bid to promote justice. Therefore, this essay seeks to examine a case study of a contract and argue how it is enforceable using illustrations from relevant case law.
Case Study: Alpha Pty Ltd (Alpha) and Betabond Ltd
The case study illustrates how Alpha Pty Ltd (Alpha) and Betabond Ltd entered into a contract as a seller and a buyer respectively. Since Alpha is a company that deals with photocopier machines, it sent a quotation on 24 July 2011 to Betabond, a potential customer, as an offer to sell photocopier machines worth $150,000, while promising to deliver them within two months. Among other conditions, the quotation had a price variation clause, which stated that the prices for the photocopier machines are subject to the prevailing market prices at the time of delivery but not at the time of placing an order. Additionally, the quotation restricted Betabond from canceling the contract due to late delivery.
In response to the quotation from Alpha, Betabond ordered the photocopier machines on 27 July the same year. Since Betabond did not consent to the terms and conditions of the quotation, it placed its terms and conditions that contradicted those in the earlier quotations by Alpha. Specifically, the terms and conditions in the order enabled Betabond to cancel the contract in case of late delivery. Additionally, the terms and conditions did not provide for the clause of price variation. Betabond also requested for an acknowledgment from Alpha and added a condition at the bottom of the document stating, “We accept your order on the term and condition state thereon”. Alpha received the order and acknowledged it on 31 July by signing it and returning it to Beta bond. However, Alpha responded with an additional letter insisting that the acceptance of the order is subject to earlier terms and conditions in the quotation dated 24 July 2011.
The relevant battle of forms case law for this case study is the Butler Machine Tool Company Ltd v. Ex-Cell-O Corporation (1979). On 23 May 1969, Butler Company offered to sell and supply a miller machine at the cost of 75, 535 Euros to Ex-Cell-O Corporation. The quotation document provided terms and conditions for sale including price variation clause and specific period of delivery. After examining the quotation plus its terms and conditions, Ex-Cell¬-O placed an order by filling the order form on 27 May 1969. In the order form, terms and conditions differed from those in the quotation form of the Butler Company. As an emphasis of the difference, Ex-Cell-O stated in the order form, “Please supply on terms and conditions as below and overleaf” (Pathak 2010, p.106). Moreover, Ex-Cell-O provided a tear-off slip for Butler to fill and acknowledge acceptance of the order form as per new terms and conditions.
However, differences in contractual terms and conditions emerged when Butler Company acknowledged the order form by assenting to it but added a letter, which stated that acceptance of the order form is subject to earlier terms and conditions in the quotation document dated 23 May 1969. When Butler Company delivered the machine at a different price, Ex-Cell-O disputed that the price variation clause was not part of the terms and conditions in the order form. In contrast, Butler Company asserted that the price variation clause was in the quotation documents under which its terms and conditions of the contract lie. In this instance, the litigation process was necessary to resolve the contract.
This case analysis shows that although Butler Company sent a quotation on 23 May 1969 to Ex-Cell-O as an offer to sell and supply miller machines, the terms and conditions were not final because they were subject to approval by Ex-Cell-O. When Ex-Cell-O responded to the quotation document by replying with the order form on 27 May 1969, it provided new terms and conditions of the contract that suited its needs. Hence, Ex-Cell-O provided a counter-offer as a response to the offer made by Butler Company. In this case, the terms and conditions that Ex-Cell-O stated in the order document annulled the terms and conditions in the quotation offer made by Butler Company. Pathak (2010) states, “By signing the acknowledgment and returning it to the buyer, the seller accepts the counter-offer of the buyer” (p. 106). Insisting on original terms in the quotation documents is a counter-offer that is subject to acceptance or rejection on the part of Ex-Cell-O. Hence, it was enforceable for Butler to supply the miller machine as per the terms and conditions stated in the acknowledged order document of the Ex-Cell-O.
Enforceable Contracts between Alpha and Betabond
For a contract to be enforceable, it must comply with several legal requirements. According to Latimer (2012), whether a contract is written or oral, a contract must satisfy six prerequisites for it to be enforceable. An agreement is one of the six prerequisites that are essential for a contract to be valid and enforceable. Parties involved in a contract must reach an agreement, which comprises offer and acceptance. In the case study, Alpha made an offer to sell photocopier machines to Betabond, while Betabond responded with a counter-offer that Alpha acknowledged. The case law, Butler Machine Tool Company Ltd v. Ex-Cell-O Corporation (1979) confirms that the terms and conditions of the counter-offer negate the terms and conditions of the offer (Pathak 2010). This aspect shows that the two companies made an agreement, which comprised of offer and acceptance. Hence, the contract is enforceable in the aspect of an agreement.
The second legal prerequisite for the contract to be enforceable is a consideration. Latimer (2012) states that a consideration “is one promise paid for by something for something in which the parties involved have promised to undertake” (p.295). In the case study, Alpha had promised to sell and deliver photocopier machines at the cost of $150,000 on condition that delivery is within two months. Betabond also accepted the promise and placed an order, which Alpha acknowledged by signing. The interaction between Alpha and Betabond shows that there is a bargain. Pathak (2010) argues that negotiations between parties involve a bargain of terms while settling for different terms at different times. In this view, the contract meets the legal prerequisite of consideration and is thus enforceable.
The legal capacity of the involved parties in the contract is a third legal prerequisite that is critical for a contract to be enforceable. Latimer (2012) asserts that people participating in a contract should not be a minor, insane, or under the influence of substances that impair judgment, for agreements under such conditions are not enforceable in Australian courts. The case study shows that Alpha and Betabond, which are undertaking the contract, have the legal capacity because they are not minors, insane people, or intoxicated parties. Hence, the court can regard their engagement in a contract as having the legal capacity to make informed decisions without undue influence from external or internal factors. Therefore, the contract is enforceable because it meets the legal capacity, which is a critical prerequisite for a contract.
The fourth legal prerequisite is that parties involved in a contract should understand or contemplate participating in a formal agreement, which is legally binding. Gillies (2004) asserts, “The parties must each intend, at the time of entering into the contract, to be legally bound by it, viz. to contemplate that it should be enforceable in a court of law” (p. 140). In this case, Alpha and Betabond intended to enter into a legal contract because the terms and conditions outlined in both the quotation and order form underscored the legal aspects of a contract. Incompliance with stated terms and conditions in the quotation and order form would amount to a breach of contract, which requires a litigation process to resolve. This aspect is evident in the law case, Butler Machine Tool Company Ltd v. Ex-Cell-O Corporation (1979), where the matter of price variation clause was subject to contractual terms and conditions.
The fifth and sixth legal prerequisites of a contract are genuine consent and legality of objects respectively. For a contract to be enforceable, the consent that parties make should be genuine. According to Latimer (2012), for consent to be genuine, it must show the existence of goods or services agreed upon by the parties. Hence, in the case study, Alpha is willing to sell and deliver photocopier machines, while Betabond is willing to buy the same at the stated price, which indicates that there is genuine consent between parties involved. Moreover, the acceptance and acknowledgment of the order form by Alpha show the extent of their consent in the contract. The precedent set by Butler Machine Tool Company Ltd v. Ex-Cell-O Corporation (1979) is that the last terms and conditions in a contract override the original terms and conditions (Pathak 2010). Hence, the contract is enforceable in compelling Alpha to comply with terms and conditions in the acknowledged order form. In the prerequisite of the legality of objects, the photocopier machines are legal because Alpha is the producer and supplier of the same.
Contracts are important in business because they form part of the legal documents, which are binding to the involved parties. The case study of Alpha and Betabond shows how companies can make offers and counter-offers with different terms and conditions with a view of reaching a point of agreement. Due to disputes associated with differences in terms and conditions in the offer and counter-offer documents, Butler Machine Tool Company Ltd v. Ex-Cell-O Corporation (1979) case law set the precedent that the terms and conditions in counter-offers have an overriding effect on the original terms and conditions. Thus, Alpha has a legal responsibility to comply with the acknowledged terms and conditions in the order form.
Gillies, P 2004, Business Law, The Federation Press, Sydney.
Latimer, P 2012, Australia Business Law, CCH Australia Ltd, Sydney.
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Pathak, A 2010, Legal Aspects of Business, Tata McGraw Hill, New Delhi.