Case Study Answers of Commercial and Corporations Law:MLC707

MLC707 Business Law

Subject Code :
MLC707
Country :
AU
University :
Deakin University

Question:

Research Paper is worth 40% of the final mark. Every group member obtains the same mark. As a result, you will need to ensure that everybody contributes their share. Word Count: 4000 words excluding citations, quotations, footnotes and bibliography (10% leeway).

Group Assignment

Question Gareth operates a car hire and event organization company. He had entered in to a profitable contract with two tour operators in Melbourne i.e Visit Victoria and Peninsula Tours. The tour operators use the cars for taking their high end customers on a sightseeing tour of Victoria’s top tourist attractions. He is also expanding his business. Over the course of the contract the following events happen.

1. His contract with Visit Victoria requires him to provide eight cars every day in order to take visitors to tourist spots along the Great Ocean Road corridor. After two months, Gareth realises that the rising cost of operating the fleet has made it impossible to continue to provide the cars without incurring losses. He approaches Visit Victoria and informs them that he will be unable to deliver all the cars required starting from the following day. On the following and subsequent dates, Visit Victoria are expecting an influx of visitors and it would be impossible for them to make alternative arrangements to pick up visitors from the airport and take them on tour.

Given this, Visit Victoria agrees to make $50 additional payment per car per day if Gareth agrees to continue to provide the cars. Gareth agrees but Visit Victoria refuses to pay when invoice is sent after the service was rendered. Is Visit Victoria under obligation to make the extra payment? What if the expected travellers are unable to come to Melbourne due to an eruption of a volcano which made air travel impossible? Discuss. Page 3 of 6

2. The following happened in regards to the contract with Peninsula Tours. The agreement stipulated the provision of five cars with drivers every day. Due to resignation of drivers and breakdown of some of the cars, Gareth informed Peninsula Tours that he can only provide three cars per day while he recruits additional drivers. Gareth goes ahead and gets the cars fixed and hires additional drivers. He spent nearly $7000. However, after two months Peninsula Tours demanded payment of compensation for the two cars not provided totalling $1200. Is Gareth under legal obligation to pay the compensation?

What if Peninsula Tours changes its mind and decides to take the three cars only after Gareth had spent considerable amount of money for fixing the two cars and hiring drivers? Discuss.

3. In addition to his tour operation business, Gareth also owns an event organisation business. One summer he organised a music concert at a winery in Yarra Valley. For this purpose he hired a Melbourne based Event Rental Pty Ltd to provide large tents, portable stage, electrical sound systems and marquees. Two days before the event, a car delivering the equipment was involved in a serious accident and the delivery items were destroyed.

The singer refused to sing given the substandard sound system that Gareth brought at the last minute from a neighbouring wine estate. Julie who travelled from inter-state for this occasion to celebrate her birthday is seeking a compensation for the disappointment she suffered in addition to refund. She is seeking $1000 for the disappointment and a refund of $800. Discuss the rights and obligations of the parties in light of the law.

Answer:

Issue:

Whether contract law imposes any obligation on the Visit Victoria to pay additional amount of $50 per car to the Gareth for supplying the car, and whether this responsibility changes if travellers fail to visit the place because of the volcanic explosion?

Rule:

Consideration is the area of the contract law which determines the validity of the contract and for this purpose consideration is considered as the act of promise by one party for which promise of other party is accepted. It must be noted that consideration under the contract law must be of some value. If consideration is not present in the contract then it might be possible that person who made the promise will suffer disadvantage in comparison of other party to the contract, and this is the factor which is considered by the Court while determining the validity of the agreement made between the parties. Consideration is the broader area and it recognizes different scenarios such as existing duty rule (ACL, 2018)

Existing duty rule cover another aspect of the consideration and as per this rule, if offeree made any additional promise to the promise under the existing contract and if such additional promise is not different from the existing promise then it is not considered as new promise and will not be enforceable. Under this rule, new consideration is analyzed as bad consideration if person to whom such consideration is offered already under the duty to do something and such person must complete his obligation in exchange of consideration defined in original contract (Giancaspro, 2014).

This rule is come into existence from the historical case law that is Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168. In this case, one party offered extra consideration to the other party for fulfilling their obligation stated under existing contract. In this case court decided that, party was not obliged to pay any extra amount because obligation of the party were already existing in the original contract and such contract is binding on the parties. Court further stated that captain of the ship was not bound to make any additional amount to the seamen for the purpose of sailing the ship back to the Port. Therefore, this promise was not new and not binding on the parties (ACL, 2018).

However, from the starting this rule has both strength and dimness, and dimness related to this rule showed when additional promise made by one party does not get validity because it is not different from the existing one. The main agenda of this rule is to ensure that parties bind under the original contract does not get any additional benefit and does not get any legal power to bind the promisor under additional promise (Law shelf, n.d.). The ancient concept of this rule is to ensure that if promisor under the contract made any new promise then such new promise must be new, which means it must not be similar to the existing promise. If such promise is similar to the existing one then it is not considered as the valid promise under contract law of Australia because it provide additional benefit to the party for the same duty under the existing contract. However, it must be noted that this rule has some exceptions also and as per these exceptions:

-One party under the contract provide additional consideration to the another party for some extraordinary factor such as providing consideration for completing the work before time or conduct any extra effort to complete the work.

-Another exemption is contractual obligation with the third party on the basis of additional promise. However, applicability of this rule is not valid if promise enters into contract with the third party towards the third party by relying on this new promise. When the promisee is obligated towards the third party, then performance of that promise with the third party is determined as good consideration by the Court for the new promise. In this situation additional promise is considered as new promise and parties to the contract are bound to perform it (Pao On v Lau Yiu Long, [1979] 3 WLR 435) (ACL, 2018).

Application:

In this case, Original contract between Gareth and Visit Victoria (VV) impose obligation on the Gareth to supply cars to the VV, but after some time Gareth realize that he suffer loss in this deal. Gareth refuses to provide cars to VV from the following day, but because of the large number of customers visits VV offer to pay $50 extra for each car to Gareth. Gareth agreed and supply cars to the VV but later they denied to pay additional decided payment to Gareth.

This case includes the provisions under existing duty rule of the consideration, and as per this rule if offeree made any additional promise to the promise under the existing contract and if such additional promise is not different from the existing promise then it is not considered as new promise and will not be enforceable. Under this rule, new consideration is analyzed as bad consideration if person to whom such consideration is offered already under the duty to do something and such person must complete his obligation in exchange of consideration defined in original contract.

However, situation is complete different if party to the contract enter into contractual obligation with the third party , and in such situation exemption stated under case Pao On v Lau Yiu Long is applicable. In the present case, VV is contractually obliged towards its visitors because of which this rule is nt applicable on it. In other words, when the promisee is obligated towards the third party, then performance of that promise with the third party is determined as good consideration by the Court for the new promise. Therefore, VV is liable to pay additional amount to the Gareth.

In case visitors do not visits the place because of the volcanic explosion then this rule is applicable on the VV because promise is not considered as new promise. Facts of this case is similar to the facts of Stilk v Myrick, in which Court stated that captain of the ship was not bound to make any additional amount to the seamen for the purpose of sailing the ship back to the Port. Therefore, this promise was not new and not binding on the parties. Similarly, in this case also VV is not bound to pay extra payment to the Gareth because promise made by VV cannot be considered as new promise and it is not enforceable. Therefore, Gareth is under original obligation to perform the duty and this additional benefit provides undue advantage to him.

Conclusion:

In this case two scenarios are discussed and both the scenarios are concluded below:

-In first scenario VV is contractually bind with the third parties because of which this rule is not applicable and they are bound to pay additional amount to the Gareth that $50 for each car supplied by Gareth.

-In second scenario if visitors do not visits the place because of the volcanic explosion then this rule is applicable on the VV because additional promise is not considered as new promise if it is similar with the original one. VV is not bound to pay extra payment to the Gareth because promise made by VV cannot be considered as new promise and it is not enforceable. Therefore, Gareth is under original obligation to perform the duty and this additional benefit provides undue advantage to him.

References:

ACL, 2018, Pao On v Lau Yiu Long, https://www.australiancontractlaw.com/cases/pao.html.

ACL, 2018, Pao On v Lau Yiu Long, https://www.australiancontractlaw.com/cases/stilk.html.

ACL, 2018,consideration, https://www.australiancontractlaw.com/law/formation-consideration.html#existingduty.

Giancaspro, M, 2014, The Rules for Contractual Renegotiation: A Call for Change, http://www.austlii.edu.au/au/journals/UWALawRw/2014/1.pdf.

Law Shelf, Problems in Consideration - Bargain Promises and the Legal Duty Rule Part I, https://lawshelf.com/courseware/entry/problems-in-consideration-bargain-promises-and-the-legal-duty-rule-part-i.

Pao On v Lau Yiu Long, [1979] 3 WLR 435.

Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168.

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