Case Study_Contract Law

Case Study: Contract Law

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Case Study: Contract Law

Introduction

Contract law relates to the legal enforcement of promises that are part of an agreement that was freely entered into, which formed a legal relationship. The legal relationship is referred to as a contract. The Australian contract law acknowledges bargain theory under which promises may be exchanged. The exchange of promises is referred to as quid pro quo in Latin. It is an essential element in contract law. There are five essential elements of a contract. These include agreement between parties, consideration, capacity to enter into a legal relationship, the intention of the parties to enter into the legal relationship, and certainty. Lack of any of these essential elements would imply that there is no agreement or the agreement cannot be enforced as a contract. Contracts do not necessary need to be written. They may also be oral. The Statute of Frauds places certain limitations on oral contracts. For instance, certain contracts such as insurance should be written instead of being oral. This paper will provide an analysis of the case involving Terri and determine whether Peter a family friend, breached a contract and defrauded him. It will focus on the principles of contract and vitiation factors to determine whether there was a contract in the case in question and whether the contract was breached.

Case Summary

Terri Williams inherited money from his father, Jerry Williams, a successful businessman. Peter, a family friend, has a taxi business. The taxi business is facing several financial problems and is at the brink of bankruptcy. He requested Terri to invest in the taxi business company. Terri signed a contract with the perception he was investing in the company to fund the purchase of new vehicles. He signed the papers regardless of the fact that he did not understand the terms of the contract as they were too complex for him as he had mild dyscalculia, difficulty with arithmetic skills. In so doing, he invested $1,000,000 instead of $100,000. However, Peter did not invest in the company. Three months later, when Terri requested to know about the whereabouts of the company, he was shocked to hear that the taxi business was no longer operational. The company was in the midst of bankruptcy proceedings. This case raises the question as to whether Peter entered into a contract with Terri and whether he breached the contract.

Facts

Consideration is one of the major elements of a contract. Consideration refers to the bargain requirement. It may be the supply of a certain product or service or the promise to undertake or not to undertake a certain act in exchange for something of value. In the case involving Terri, he signed the contract to invest in Peter’s taxi business. He intended to invest a total of $100,000 into the business according to the oral agreement he had with Peter. However, upon signing the contract Peter duped him into investing $1,000,000.

Capacity is also one of the essential elements of a contract. A party that enters into a contract should have a sound mind and be of legal age. Terri is 19 years old. Therefore, he has the legal age to enter into a contract with Peter. However, he has mild dyscalculia, which is a condition that makes him have difficulty with arithmetic skills. His signs the contract despite the fact that he does not have full knowledge of what it entails. He fully trusts Peter, a family friend. He does not think Peter would dupe him. Therefore, it is pertinent to claim that Terri does not meet this condition to enter into a contract with Terri.

Intention is also one of the major elements of a contract. According to this provision, private non-commercial agreements between family members may imply the intention of entering into a legally binding contract. Peter is Terri’s family friend. Upon the death of Terri’s parents, Terri had stayed at Peter’s family home. In addition, when Terri’s parents died, Peter was left as the sole executor of the parent’s estate. According to the above information, it is evident that Terri and Peter are not family members. However, Terri’s parents had entrusted Peter with their estate. Therefore, Peter and Terri had the intention of entering into a legally binding contract.

For a contract to be legally binding, it should be complete. It should be specific on what each party is bound to do or not to do. The contract involving Peter and Terri met this provision. Peter drafted documents that showed the amount of money that Terri should invest in the taxi business. According to the documents, Terri would invest $1,000,000 in the taxi business. However, unknown to him, he was investing $1,000,000 and not $100,000 as they had agreed orally.

Analysis

The facts from the case show that Terri there was an agreement between Terri and Peter to invest in Peter’s taxi business. Terri intended to invest $100,000 into the business. Therefore, the contract meets the consideration provision. However, Terri does not have the capacity to enter into a contract with Terri since he suffers from mild dyscalculia. He does not understand the complex calculations involved in determining the amount of money that he would pay and the terms and conditions of the contract. Peter knows this. He used complex business statistics and figures to explain the amount of money that Terri should invest in the taxi business. He claimed that the taxi business was doing extremely well. This is despite the fact that Peter needed the money to pay off his creditors. Terri found the explanation too complex and was embarrassed to ask additional questions.

According to the above information there are several vitiation factors of the contract. Peter engaged in misleading or deceptive conduct. He duped Terri into signing a contract claiming that the taxi business was doing well. He also claimed that Terri would need to invest $100,000 into the business. However, upon signing the contract, Terri invested $1,000,000 instead of $100,000 into the business.

Unconscionable conduct is also one of the vitiation factors of the contract. Unconscionable conduct involves transactions between a dominant party and a weaker party. It is prohibited by equity and by statute. Unconscionable conduct in equity intervenes when a party takes advantage of the special disabilities of the other party in the contract. This may make the resulting transaction be oppressive on the weaker party. From the case, it is evident that unconscionable conduct in equity is one of the vitiation factors of the transaction. Peter took advantage of the fact that Terri has mild dyscalculia and used complex business statistics and figures to explain the amount of money that Terri should invest into the taxi business. This made Terri ultimately invest $1,000,000 into the business instead of $100,000.

Undue influence is also one of the vitiating factors of the transaction between Terri and Peter. Undue influence occurs when there is inequality of power between the parties that are entering into a contract making the weaker party enter into an oppressive contract with the dominant party. Nevertheless, not all transactions may lead to remedy. Undue influence may be express or presumed. Express undue influence occurs when the dominant party acts in such a manner that deprives the free will of the weaker party. On the other hand, implied undie influence occurs when the dominant party has a position of trust or confident according to the weaker party.

From the facts of the case detailed above, it is evident that there was implied undue influence. Peter was Terri’s family friend. In fact, when Terri’s parents died, they named Peter as the sole executor of their will having left everything to Terri. Therefore, Terri had complete trust in Peter. He could not fathom that Peter could con him. Therefore, when Peter requested Terri to invest in the taxi business to fund the purchase of new vehicles, he trusted him completely. Peter claimed that he needed not more than $100,000. However, Terri unknowingly transferred $1,000,000 from his bank account to Peter’s bank account with the notion that the money was for investing in the taxi business as they discussed the previous night.

Conclusion

From the facts of the case, it is clear that the transaction between Peter and Terri met most of the provision needed when entering into a contract. However, there are certain vitiation factors that make Terri have the right to rescind the contract and sue Peter for damages. Unconscionable conduct, misleading or deceptive conduct, and implied undue influence are the major vitiation factors of the transaction between Peter and Terri. Peter claimed that his taxi business was doing well yet it was on the brink of being bankrupt. He requested Terri to invest $100,000 into the business and instead transferred $1,000,000 from Terri’s bank account into his bank account. Terri trusted Peter. He held in high regard just like his parents. Upon the death of his parents, he had stayed in Peter’s family home for comfort. Therefore, he could not believe that Peter would cheat him.

Bibliography

Latimer, Paul, Australian Business Law (CCH Australia Limited, 2012)

McKendrick, Ewan and Qiao Liu, Contract Law: Australian Edition (Palgrave Macmillan, 2015)

Stone, ‎ Richard, James Devenney, and ‎Ralph Cunnington, Text, Cases and Materials on Contract Law (Routledge, 2011)