A contract is an agreement that outlines specific details of an issue between different parties regarding a certain matter which is enforceable in a court of law (Meiners, Ringleb and Edwards, 2006). A contract can take two other forms besides agreements i.e. based on promise or legal relationship. For a contract to be considered valid it must contain five important elements: consideration, enforceable terms/legality, lack of vitiating elements, genuine consent, and capacity to enter into a contract (Turner, 2008).
In principal a contract agreement must involve more than one party who must either be an offeror, the person presenting the offer or an offer, the party accepting the offer. The laws of contract in Australia are governed by a branch of law referred to as Common Law in addition to other relevant statutes such as Fair Trading Legislations 1987 and Misrepresentations Act; these are the laws that we are going to apply in the determination of this case scenario that involves Michael, the vehicle dealer, and the manufacturer.
A contract must be valid to be upheld in a court of law; the validity of a contract is determined based on five elements that have been outlined above. Where the conditions of a legal contract are met then it must be performed. The central issue that requires determination, in this case, is the validity of the contract as it is; this is because it is the central element that the court will base its ruling on whether to enforce the terms of the contract or not. More specifically contract laws demand that a contract agreement must be performed where all the conditions of a legal contract are met (Meiners et al 2006).
The court ruling on the validity of this contract will be two ways; the validity of the contract between Michael and the vehicle manufacture and the validity of the contract between Michael and the dealer who distributes and market the vehicle model. This means that the legality of the contract between Michael and the two parties will be tested both ways.
Contract law in Australia is regulated by two forms of laws; common law and consumer law. The relevant statutes that deal with contract law are Australia Sales of Goods Act, 1896, Trade Practices Act 1974, Fair Trading Legislations 1987, Misrepresentations Act, Corporations Act 2001 and the soon to be enacted Competition and Consumer Act 2010 among others (Clarke, 2010).
The laws pertaining to breach of contract are especially going to be relevant in this case because they will guide the process of determining whether a breach of contract did occur in the process. Breach of contract in legal terms is used to describe actions that have been undertaken by one of the parties in contravention to the binding agreement as originally agreed between the parties (Gibson, Rigby and Tamsitt, 2005).
It is also used to describe cases where the terms of an agreement as entered between various parties are not honored according to the articles of the agreement.
The misrepresentation Act of 1972 makes it illegal for a person entrusted by a business to make misrepresentation that misleads another person to enter into a contract (Legislative History.com, 2010). Finally, in the determination of this case, we shall rely on legal precedents of similar cases by examining the legal principles that the court upheld in their ruling.
A few examples, in this case, are the Pharmaceutical Society of Great Britain v. Boots Cash Chemist Southern Ltd. Case as well as Waltons Stores (Interstate) Ltd v Maher case.
Foremost in order to determine the validity of the contract which is our major objective we need to test the legality of this contract against the five essential elements of valid contracts: consideration, enforceable terms, lack of vitiating elements, genuine consent and capacity to enter into contract (Turner, 2008).
As a general rule the law of contract presumes that all commercial agreements involve intention to be legally bound by both parties what is herein referred as genuine consent. This is in contrast to domestic agreements which the law considers not to be legally binding, in this case therefore since the agreement involved sale of a motor vehicle through a commercial transaction then the element of legal bound must be present.
Hence, so far based on the condition that requires an agreement to be legally binding this contract between Michael and the dealer as well as the manufacturer is valid as far as the competition claim is concerned. Based on the second condition of consideration the law states that there must be elements of promises or actions and benefits (Turner, 2008).
This means that one party to the agreement must make promises that they expect to benefit from which is also regarded as the price of the action. In addition a consideration must also include two important characteristics; one, it must originate from the promisee and two; it must have monetary value i.e. “it must be sufficient or valuable” (Turner, 2008).
Looking back at the circumstances of the contract in this case we find that all the elements of consideration are satisfactory, this is because the agreement benefits both parties in one way or another; the car dealer gets to sell the vehicle while Michael gets eligibility to win a vehicle during the competition. In addition it is clear that the consideration originated from Michael and that it indeed had monetary value. At this point we divide the types of contracts into two; simple and formal contracts.
For simple contracts the element of consideration must be present before the contract can be enforced while formal contract does not require the element of consideration since they are enforced by the virtue of their forms which is referred as deed (Clarke, 2010). Given that this agreement would be a simple contract the element of consideration will certainly be important which we have determined to be present.
Let us now determine the validity of the contract based on the third condition which is capacity to enter into legal contract; generally the law cannot enforce contracts where minors and insane people are parties or instances where public policy does not allow (Clarke, 2010). Under the circumstances of the case this does not seem to be the case since it is not mentioned and the assumption is that Michael is a “legal person” (Clarke, 2010).
Condition four pertains to terms; as a matter of fact the court will enforce two types of terms in a contract document; express terms and implied terms based on the circumstances (Clarke, 2010). Express terms are those that are clearly outlined in the agreement which in this case include those advertised by the dealer which required Michael for instance to avail himself within 12 hours to be eligible to win a new vehicle.
On the other hand implied terms can be meant by law or by fact; when implied by law it means that particular statutes have been enacted by the government to address particular types of contracts such as the Goods Act of 1958 which regulates and sets the terms of buying and selling of goods (Clarke, 2010).
When it is implied by fact no written evidence is necessary to prove existence of contract or assumption of a term as is the case in this circumstance where Michael assumes the contract as advertised to be real which any other normal person would presume to be so under the same circumstances. To prove the legality of the contract under this condition there are several things that needs to be considered.
Finally we have the fifth condition which is the lack of vitiating elements, these refers to all other factors that might invalidate the agreement between the parties based on technicalities which might cause the court to rule that a contract is void, voidable or unenforceable. Let us briefly discuss some few vitiating elements that might invalidate this contract (Gibson et al 2005).
Mistake is one form of a vitiating element in contract law, where one party errs as a result of relying on another party’s information the mistake is said to be unilateral (Gillies, 2005). There appears to be a vitiating element of mistake in this case given that Michael was mistaken on the reality of the contract which prompted him to act in a way that resulted to his financial loss of $10000.
Where a court determines that element of mistake exist that one party was aware of but which they did nothing to rectify the contract is rendered voidable and rescission is allowed as happened in the case of Taylor v Johnson 1983 (Gillies, 2005).
The other type of vitiating element that is found to be present in this case is misrepresentation which is generally divided into three categories; fraudulent, negligent and innocent (Gillies, 2005). The type of misrepresentation that is found on this contract is fraudulent because statements that turned to be utterly false were made by the dealer in the advertisement that was fraudulent in nature which resulted to the financial loss of Michael who acted mainly because of these misleading statements.
In Smith v Land and House Property Corporation, 18884 the court determined that advertisement of the land which caused LHP to enter into contract amounted to fraudulent misrepresentation (Gillies, 2005). Again fraud misrepresentation is found to be the case when Michael tests the vehicle only to find that it is not the best car in the world, based on the case of Derry v Peek, 1889 Michael has a legal right to claim damages (Turner, 2008).
Another aspect of an agreement that the court relies before it can enforce it is its legality which requires the articles of the contract to be within the law since the court cannot enforce a contract that requires illegal activities for it to be performed (Meiners et al 2006). So far it appears that Michael has a strong case against the vehicle manufacturer as well as the dealer, but let us go on and investigate other principles of the law that pertains to this case.
The principle of estoppel denies someone the liberty to renegade on a promise that they would otherwise be allowed to; in this case Michael can ask the court to apply it to prevent the manufacturer from retracting the promise of the competition that had earlier been offered. However, to do this he must show that he relied on this particular competition offer that made him to spend $10000 in hope of winning the vehicle which will lead to financial loss if this offer was to be withdrawn.
A typical case that is relevant to this case scenario is the Waltons Stores Interstate Ltd v Maher, 1988; in this case, the court upheld the terms of the contract as it would have been had it been finalized based on the fact that the circumstances estopped Walton from denying the contract according to a legal precedent set earlier in the case for Legione v. Hateley (1983) (Turner, 2005).
This means that although Michael never had the opportunity to sign the real contract that was alluded to during the advertisement there is existence of a valid and enforceable contract under the circumstances as far as the law is concerned. Equally important considerations are the basic steps of formation of a contract which must include existence of an offer and acceptance which must be made at the same level which is also found to be the case for this particular contract.
According to the Australia Misrepresentation Act of 1972 both the agent of a business and the business itself are liable for a fine of between $20000 and $100000 if they are found guilty of misrepresentation (Legislative History.com, 2010). It states that “a misrepresentation is made by the person by whom the trade or business is conducted, a person duly authorized or a person acting in the course of his/her employment” (Legislative History.com, 2010).
As such, both the car manufacturer and the dealer will be liable for an offence in this case. In the case of fraud misrepresentation the plaintiff has the liberty to seek rescission and sue for damages which is what Michaels should exactly do in this case.
Clarke, Julie. (2010). The Law: Overview of Australia Contract Law. Web.
Gibson, A., Rigby, S. and Tamsitt, G. (2005). Commercial Law: In Principle. 3rd edition, Thomson Law Book Co, Australia.
Gillies, Peter. (2005). Business Law. Washington DC: Woolworth Publishers.
Legislative History.com. (2010). Misrepresentation Act 1972. Web.
Meiners, R., Ringleb, A., & Edwards, F. (2006). The Legal Environment of Business, 9th ed. Mason, Ohio: Thomson.
Turner, C. (2008). Australian Commercial Law, 27th edn. Victoria: Thomson Reuters.