Contract and Sale of Goods Law Case Study

Breach of contract

A contract is a promise that is enforced by the law¹. A contract is entered into by two or more parties and it should be legally binding. In order to determine whether there was a breach of contract, it could be important to establish whether or not the two firms, (i.e. Blackboard and PostersPLUS) entered into a legally binding contract. In June 2012, the firm entered into a contract to supply PostersPLUS with cast vinyl film for a period of one year. The contract between the two parties contained the four elements of a legally binding contract. The four components make promises enforced in a court of law.

First, Blackboard made an offer to provide PostersPLUS with vinyl film products. On the other hand, PostersPLUS was to pay the supplier a certain amount of money for the supplies. Second, there was an acceptance on the part of PostersPLUS to the terms and conditions proposed by Blackboard. Third, consideration was contained in the contract because there was payment in exchange for the supplies in the contract. Fourth, legality is an important element that must be contained in contracts. It is evident that the contract between Blackboard and PostersPLUS was legally binding because it was within the framework of the Australian law. Another important aspect to analyse is whether or not a contract for sale of goods was entered into by the two Australian firms. A contract for sale of goods is a legally binding promise between two parties, whereby one of the parties promises to supply goods at an agreed amount of money.

Blackboard and PostersPLUS entered into a contract for sale of goods because there was an agreement to supply goods at a specified amount of money and for a certain period of time, i.e. a period of 12 months. ²

There was a breach of contract on the part of Blackboard. It is clear that Blackboard was aware of the purpose that PostersPLUS intended to use the vinyl film at the time the contract was entered into between the two firms. PostersPLUS sold about 90% of the vinyl film labels purchased from Blackboard during the contract period to SEASTORM Containers. The following clause was contained in the contract: Blackboard gives no warranty that the goods are fit for any particular purpose.

It was illegal for Blackboard to use such a contract clause in the agreement because the management was aware that PostersPLUS was to sell the vinyl film labels to companies that would use them as labels on shipping containers. The issue at hand can be analysed in relation to two Australian case law examples.

First, Commercial Bank of Australia Ltd v Amado (1983) is based on legal issues that revolved around unconscionable dealing as a result of limited education and poor bargaining power. The case is a perfect contract law example, which is studied by many law students in Australia. It was held by the judges of the High Court of Australia that it was unlawful for the defendant to claim unlimited liability to the claimant because Amados was aware of the limit of the liability under guarantee. Also, the claimant had limited knowledge of the English language, which made him not comprehend all the issues presented in the contract³.

Thus, it can also be argued that PostersPLUS did not understand the contract clause, which stated that “Blackboard gives no warranty that the goods are fit for any particular purpose”. It could also be argued that the company representatives who signed the contract on behalf of PostersPLUS documents did not have adequate knowledge of English and business terminologies. However, Blackboard was aware of the purpose of the vinyl film labels at the time of signing the contract.

Second, although Burger King Corporation v Hungry Jack’s (2001) case was dismissed, it has important issues that could be used for argument in a contract dispute between Blackboard and PostersPLUS. Blackboard violated the clauses that are pertinent in the development of contracts. The clauses require specific procedures that are aimed at ensuring a high level of integrity and honesty. It could be argued that Blackboard did not act in good faith when signing the contract documents because it knew the implication of the warranty clause, but it did not disclose it to PostersPLUS. Thus, it can be concluded that Blackboard breached the contract.

How PostersPLUS’s damages will be assessed

Damages for a breach of contract are offered to a claimant to compensate for losses incurred as a result of breaching a contract. It is important to note that a victim can only be compensated if the damages are caused by the defendant.

PostersPLUS might claim two categories of damages from Blackboard. However, the final sum could be obtained by adding the amounts determined under individual damages. First, the firm will claim for special damages, which implies the amount of the actual money that it spent to provide new labels worth $10,000 to SEASTORM Containers at its own expense. Also, the firm might claim for damages incurred in the process of litigation, i.e. the total amount of money that will be spent in the legal process. In addition, PostersPLUS might claim for the defective labels that are worth $20,000. The labels are not used and they cannot be sold to shipping companies.

The damages are easily determined because of their nature. General damages constitute the second category of damages that PostersPLUS might claim. It could be quite difficult to determine the actual value of general damages using mathematical calculations. However, PostersPLUS should claim for the losses that might be incurred when SEASTORM stops purchasing vinyl labels from it because of poor quality. The assessment might estimate the value of transactions that PostersPLUS does with SEASTORM and other shipping companies. The actual value of general damages would be arrived at by the court after judges look at aspects related to the losses and determine a figure that is fair. Also, the figure should be legally and economically feasible to both parties.

Conclusion

Legally binding contracts are entered into by two or more parities. Contracts must have the four elements of legally binding agreements so that they can be used in a court of law. Blackboard breached the contract by supplying PostersPLUS with vinyl film labels that were of low quality. Also, the firm used a contract clause that was not made clear to the representatives of PostersPLUS at the time of signing the legal agreement. PostersPLUS will claim for both general and special damages from Blackboard for the breach of contract.

Footnotes

1McKendrick, E. (2012). Contract law: text, cases, and materials. Oxford, United Kingdom: Oxford University Press. Web.

2 Poole, J. (2012). Casebook on contract law. Oxford, United Kingdom: Oxford University Press. Web.

3 Qian, J., & Strahan, P. E. (2007). How laws and institutions shape financial contracts: The case of bank loans. The Journal of Finance, 62(6), 2803-2834. Web.