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Contracts Management Case Study

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Updated: Mar 21st, 2021

The contract between Lisa and her coach

Introduction

The case involves Lisa who owns a coach and agreed with John to have him do windscreen fitting for him for $1750. The job was to be completed by May 31st ready for two tours that Lisa had to handle. John failed to honor the agreement. The agreement also was that John will lose a significant amount of money for not fulfilling the promise. Lisa offered to pay John $500 more so that he may complete the work on the same day. John accepted the offer. John did the work on time and Lisa promised to pay. For cleaning the coach, John charged $250. However, Lisa only paid $1750 and refused to settle the balance. This case is used to address several emerging issues as discussed below.

Discussion

Consideration means what is exchanged between the parties to a contract to make the agreement valid. The contract will only be legally enforceable when both parties provide consideration1. It also defines the agreed standards upon which the contractor is expected to do the work. The contractor agrees to do the work by the set date and the client promises to compensate him for that. Consideration is essential in contract formulation and a contract cannot be valid without it. Consideration is not necessary for formal contracts such as those involving contracts under seal and contract records.

For simple contracts that are neither formal nor in records, consideration is important to make them valid. In simple contracts, the agreement is either made orally, in writing, or implied. It is what the promisee needs to do in return for the promise given by the promisor. The consideration is executory or executed depending on the time when it is given. If the consideration has already been performed, then there is executed consideration. If it is still to be performed, then it is referred to as executory consideration.

In this case, the consideration is executory because it is settled as the work is completed. Lisa will pay John if the work is done. This means that the consideration will not be settled until the work is complete.

Payment of $500 by Lisa to John

The agreement reached by the two parties John needs to be tested for validity. A valid contract has some elements that need to be fulfilled. The agreement reached cannot form a contract unless it meets the following elements:

  1. There must be an offer and acceptance. Lisa offered to pay John $1750 if he finishes completing the Job by 31st and John accepted the offer. John failed to deliver the promise. Lisa made another offer of giving John an extra $500 for him to complete the job and John accepted that. There is, therefore, offer and acceptance in this case. The fact that John did not complete the work as earlier agreed and a new offer was made, means the earlier agreement for $1750 does not exist because of a counteroffer for an additional $500.
  2. The parties must consent freely. The parties to the contract must agree without being coerced to do so. In the case above, Lisa and John enter the agreement freely and no one was forced to give his or her consent.
  3. Contractual capacity. The two parties had the contractual capacity and, therefore, no they were legally allowed to enter into legal agreements2.
  4. Consideration. This has extensively been discussed. The contract is incomplete without consideration. This is what is exchanged between the parties for the contract to be formed. For Lisa and John, there was executor consideration. Lisa agreed to pay for the work done by John and John consented to complete the work within the agreed time.
  5. Intention to form Legal consequences. The parties must be willing to form legal consequences for the breach of the contract.

For this contract, to determine if Lisa was legally responsible to pay $500 will require one to consider several factors. Firstly, the agreement was reached and Lisa agreed to pay John $500 more to complete the job and John fulfilled the promise. There was no legal action agreed to be done on the party that breaches the agreement. The agreement was rich with all requirements to form a contract but there was no intention to form legal consequences. Lisa is, therefore, not legally required to pay the money.

Payment of an additional $250

Lisa does not have to pay the additional $250 that John is claiming because that was not part of their agreement. In the agreement, John was supposed to make a new windscreen fitting and not clean the coach. He did not, therefore, do as agreed in the contract. The $250 should not be paid by Lisa.

Methods of discharging a contract

  1. Fulfillment of contractual obligations: When all the parties in a contract perform their legal duties in the contract, then the contract is discharged.
  2. Death of one of the parties: The death of a party to a contract terminates the contract where the contractual obligations or duties could only be performed by the person who dies.
  3. Breach of contract: A contract is discharged when one of the parties refused or fails to accomplish his/her contractual duties10. The contract requires that each party should discharge their contractual duties and without it, the contract cannot stand.

Lisa and Tour to the Hunter Valley

The coach tour to the Hunter Valley was not conducted as agreed. The agreement was to tour four famous vineyards which were not done. Time ran short and they could only tour 3 vineyards. This was a breach of contract because Lisa overslept. Lisa did not, therefore, strictly perform the contract.

Refunding the money for the canceled theatre

There was a frustration that rendered the contract incapable of performance. The theatre burned down and the tour had to be canceled. Since Lisa did not perform his contractual obligations due to frustration, then the customer has the right to be refunded the money4. The contract was not performed and, therefore, customers have not legal obligations to pay for the tour.

The contract between Victor Investments and Italiano Cuisine

The contract between Victor Investments and Italiano Cuisine involves an acceptance that was made by post. The offer and acceptance were made by post. According to contract law, the offer made by post can be accepted by post. The acceptance is acceptable the moment it is posted irrespective of the time when it reaches the other party. A good example is the case of Byrne v. Van Tien Hoven where it was held that the acceptance was valid. The plaintiff posted their acceptance on October 11th in New York. The defendants were not aware but it remained valid.

Offer and acceptance are the most essential elements of a contract. Italiano Cuisine Pty Ltd made an offer to Victor Investments Ltd on 1st September 2012 and the offer was accepted when Victor Investments faxed back stating the items they would want to be supplied and the date they expect them supplied. The law recognizes such offers and accepted as valid. Cuisine Pty Ltd’s reply indicates that they agreed with the terms and conditions of delivery as ordered by Victor Investment Limited. They packed the items for delivery on the day when they agreed. This means that they were performing their contractual duty.

According to the law of contract, the offer can only be revoked before acceptance. Once accepted, the offer cannot be revoked. Since the offer was already accepted, Victor Investment Ltd must receive the goods as ordered. Italiano Cuisine can argue that they manufactured the goods specifically for Victor Investment Ltd. The contract was valid because there were an offer and acceptance, free consent, consideration, and contractual capacity8.

Accepting the offer shows that the party is ready to fulfill all the contractual duties failure to which he faces the consequences. The position of the two parties is that Victor Investment Ltd accepted the offer and ordered the goods. They should, therefore, accept the goods when delivered. They should pay for the goods they ordered. For Italiano Cuisine Ltd, they have the right to sue the other party for breach of contract. The damage suffered should be compensated by Victor Investment Ltd.

Conclusion

An offer made via fax and accepted via fax is valid. The acceptance is valid when posted but not when it reaches the recipient, in this case, the offeror9. Victor Investment Ltd should therefore pay Italiano Cuisine Ltd for the goods prepared for delivery or compensate for the damage suffered.

The contract between Tom and Sally

Introduction

The agreement between Tom (a prominent businessman), and Sally, who acted as Tom’s escort to various social and business functions, will be viewed for compliance with the law of contract in this section. They formed an agreement in 2001and Sally was to give up her career and become Tom’s mistress. The promise was that Sally was to manage Tom’s Penthouse in Sydney and be available to him on Tuesday and Friday every week.

She would, however, have other relationships if she wished. She was to be paid $15000 a week and enjoy a rent-free apartment. The apartment would later be transferred to Sally after 10 years of commitment to the agreement. At the end of the agreement, she would also get $250000. Tom terminated the agreement in January 2012 but he refused to pay $250000 and transfer the property to her. Tom argued that the contract was not binding.

Advice to Sally

The contract is more than just an agreement. Although an agreement is one that matures to be a contract, there is more in a contract than a mere agreement. There are essential elements that make an agreement to be regarded as a valid contract. There has to an offer and acceptance. An offer is made by one person expecting that a specific person or any other person will consider taking it7. The consideration must be present for a contract to be formed.

The parties must consent without being coerced by anybody. The parties need to have the contractual capacity for them to form a valid contract. For Sally and Tom, most of the essentials of a valid contract were met. However, their agreement could not be enforced by law6. They did not show any intention to make the agreement legally binding. It would be very hard for Sally to prove that there was a contract between her and Tom. The contract is capable of enforcement if there is a written document that stipulated the terms agreed by the parties. Tom and Sally did not sign a document showing that they entered into a contract.

The advice to Sally is that she should not even bother to follow up the payment of $25000 from Tom or transfer of the property because it will be hard to prove without a document that proves that they agreed on such terms. The contract as stated by Tom was not legally binding. Tom is not legally required to pay Sally any money or transfer the apartment to her because the contract is not legally binding.

Sally cannot recover the part of the deal lost through the breach of contract by Tom. Sally completed her contractual obligation without fail but at the point of forming the contract, she did not make the contract legally binding5. If she has any document proving there was a contract between her and Tom, then she can present it in a court of law and get compensated.

Peta’s case study

Introduction

Peta is a participant in a skateboarding competition and is competing for the first time at Surfers Paradise Skateboarding Classic. She registered and paid the fee. She arrives at the venue early in advance but visits Mount Bullfrog tourist attraction first accompanied by a friend Haide. She suffers a fracture when her shoe slips on a wet piece of rock covered in moss. She is seeking compensation from Mount Bullfrog for the damage. There is an exclusion clause printed by Mount Bullfrog stating that Patrons enter at their own risk. The Mount Bullfrog Reserve is not liable for your loss or injury. This may bar Peta from compensation. This section seeks to find out if Peta can seek legal damage for the injury and refund of the registration fee she paid for the competition.

Advising Peta

The exclusion clause should bring to the attention of the other party before they enter the contract. For The Mount Bullfrog Reserve had put the exclusion clause clearly stating that “Patrons enter at their own risk. The Mount Bullfrog Reserve is not liable for your loss or injury.” However, Heidi and Peta ignored the official information before paying the entry fee. They did not read all the information that contained the above exclusion clause.

They ended up paying the fee and entered the Mount Bullfrog tourist attraction without reading the clause. They were warned by the statement that they enter at their own risk and no compensation should be expected for any damage suffered. The clause is valid whether they read it or not. After the fracture, Peta cannot be compensated because it is deemed that they entered the place with full information of what the stand of Mount Bullfrog is regarding the dangers suffered by the visitors.

Concerning the refund of fees for the competition at Surfers Paradise, Skateboarding Classic is negotiable. Peta argues that Skateboarding contracts have a clause that states that if events like the one that happened to her occur, the fees are refunded. The promoters even stated to her that they do not have such a provision in their contract. However, Peta should produce a contract that has the provision of refunding the competition fee and prove that the tragedy that happened to her is one of the ones provided for in the contract. Mostly in the receipts when one pays such fees, there is an exclusion clause that states if they are refundable or not3.

Conclusion

The exclusion clauses are valid whether they are included in the contract so long as they are printed and open for the parties to read before they enter the contract. The exclusion clause at The Mount Bullfrog Reserve is valid because it was clear to Peta before entering the tourist attraction site. She read but ignored the important information regarding such tragedies like what happened to her. She can, therefore, not seek redress for the damage she suffered. She is deemed to have been fully aware that The Mount Bullfrog Reserve does not bear the responsibility of whatever happens to those who visit the tourist attraction site.

Bibliography

Atiyah, P, The Rise and fall of Freedom of Contract, Clarendon Press, London, 1979.

Barnett, R, Contracts, Aspen, Aspen Publishers, 2003.

Burling, J, Research Handbook on International Insurance Law and Regulation, Edward Elgar Publishing, London, 2011.

Ewan, M, Contract Law, Oxford University Press, Oxford, 2005.

Fruehwald, S, Reciprocal Altruism as the Basis for Contract, University of Louisville, Louisville, 2009.

Gillies, P, Concise Contract Law, Federation Press, New York, 1988.

Helewitz, J, Basic Contract Law for Paralegals, Aspen Publishers Online, London, 2010.

Koffman L, E MacDonald, The Law of Contract, Oxford University Press, Oxford, 2007.

Martin, E, Oxford Dictionary of Law, OUP, London, 2006.

Willmott, L, Contract Law, Oxford University Press, North Melbourne, 2009.

Footnotes

  1. M Ewan, Contract Law, Oxford University Press, Oxford, 2005.
  2. P Atiyah, P, The Rise and Fall of Freedom of Contract, Clarendon Press, London, 1979.
  3. R Barnett, Contracts, Aspen, Aspen Publishers, 2003.
  4. S Fruehwald, Reciprocal Altruism as the Basis for Contract, University of Louisville, Louisville, 2009.
  5. P Gillies, Concise Contract Law, Federation Press, New York, 1988.
  6. Koffman L, E MacDonald, The Law of Contract, Oxford University Press, Oxford, 2007.
  7. Willmott, L, Contract Law, Oxford University Press, North Melbourne, 2009
  8. Martin, E, Oxford Dictionary of Law, OUP, London, 2006.
  9. J Burling, Research Handbook on International Insurance Law and Regulation, Edward Elgar Publishing, London, 2011.
  10. J Helewitz, Basic Contract Law for Paralegals, Aspen Publishers Online, London, 2010.
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