Contract Law: Commercial Purpose - Case Study Example

Contract Law: Commercial Purpose (i) Questions for and Clarifications needed from Mr. John Nile What are the terms of the contract What is the arrangement between Mr. John Nile and Mary Johnson for the charter of the Boat What is the role of Mary Johnson or her son Bill Johnson in the proposed commercial venture Are they partners or just letting out the boat on charter to Mr. John Nile How Mary will be paid; whether on the basis of the number of hours the boat is used or per the number of passengers handled by Nile What is the offer made by Mr. Nile as to the number of hours the boat is to be chartered and the charges agreed to be payable by Mr. Nile to Mary Whether Mary has been conveyed the intention for chartering the boat for all the Sundays in July and August 2007- has it been accepted by her 2. What are the obligations of Mary Johnson Arrangements with regard to the crew; has it been discussed Has Mary or her son Bill Johnson on her behalf undertaken to hire the crew Whether such an obligation to hire the crew on behalf of Nile be included as a term of the contract between Nile and Mary Who is responsible for the payment of the crew of the Boat Is it included in the charges negotiated with Mary Who will decide on the correctness of the amount payable to the crew Will Nile's concurrence be obtained for the charges payable to crew (This is important as this will affect the net earnings from the whole venture) Whether the boat will be made seaworthy by completing the defouling and painting the hull before the cruises start Who will pay for the charges for such defouling and painting Has it been agreed that "the boat will be made seaworthy by the owner before the cruises start" will form part of the contract Has the boat been insured If so what are the obligations of the insurer Till what date the insurance is valid Does the insurance cover the third party claims in case of accidents If currently there is no insurance, who will pay for the insurance coverage Has Mary a right to rescind the contract If so what are the terms (Notice period requirements, compensation for premature terminations are to be decided, as the tickets for such cruises will be sold in advance by Mr. John Nile and any unexpected withdrawal by Mary from the contract will put Mr. Nile into difficulties of facing the claims of the proposed passengers.) Has it been made known to Mary that pursuant to entering into a contract for the charter of the boat, she will become binding for all legal obligations arising out of the contract whether expressed in the contract or implied by common usage in the charter of boats for cruises commercially 3. What are the rights and obligations of Mr. John Nile under the proposed arrangement Has Mr. Nile ensured that the boat is capable of carrying 40 passengers ( Since his commercial calculations are based on this assumption it is important that this point should be cleared) Can Mary produce a certificate to the effect that the boat can carry 40 passengers at a time In case if a certificate cannot be produced, is she agreeing for the legal consequences of the boat being capsized due to overweight of the passengers Is she aware of this eventuality Does Mary have a say in the fixation of the charges for the passenger fares for the cruises Does it need to form part of the contract while specifying the consideration payable to Mary What is the agreement relating to the provision of other amenities in the boat other than food and wine For Example provision of clean toilet facilities, provision for the clean maintenance of the deck and the retiring rooms- whose responsibility is this Who will bear the cost of the maintenance materials and maintenance crew Has this been included in the costs payable to Mary Has Mr. Nile discussed with Mary or her son about his withdrawing from the contact, in case he is not able to mobilize enough passengers to carry out the venture If not what are his ideas on this (The contract should mention a notice period and penal clauses for both the parties in case the contract is to be terminated pre-matured for whatever reasons.) Has the place at which the boat should be made available is fixed Is the route that the boat going to take made known to the owner of the Boat Will there be a change in the costs payable to the owner if the boat takes a detour on the wishes of some of the passengers Who will pay for the fuel and other operating costs of the voyages that the boat is going to take (These details form an essential part of the contract and must be explicitly agreed to between the parties to the contract 4. What are the details of the arrangements for the Tall Ships Spectacular What are the contractual arrangements for the special outing of the Tall Ships Spectacular What are the roles of Mr. Nile and Mary in this special assignment and the terms on which both had agreed to execute this special outing Will this be a part of the contract of charter of MV Tamar; boat owned by Mary or will it be a separate deal which needs to be addressed individually (More details need to be collected on this particular deal as Nile's telephone conversation is very vague on this issue. (ii) Questions for and Clarifications needed from Mr. Bill Johnson: While all the notes and questions mentioned above for the meeting with M. John Nile applies equally to Mr. Bill Johnson, the following additional questions may be put to Mr. Bill Johnson with regard to the contract and explanations/clarifications sought from him before the draft contract is made ready. 1. Ownership and other details about the Boat MV Tamar: Who is the real registered owner of the boat MV Tamar Is there any registration concerning the ownership of the boat (If so please provide the registration details with number, date and place of registration) Is there a renewal procedure for the registration of the boat If so whether the registration is current and is renewed according to the registration procedures (These details about the boat will form part of the propose contract of chartering the boat) When was the last time the boat actually sailed Whether a certificate of seaworthiness can be issued by Mary or Bill Bill has to be made to understand the legal implications of issuing the certificate of sea worthiness, as the owner will be held responsible for any untoward incident happening because of the non-sea worthiness of the boat. (Reasons for defouling and painting of the hull and the effect of such actions on the seaworthiness may be ascertained just for information) Is it agreeable for Bill that the issue of the certificate of sea worthiness will be a term of the contract Are there any known perils about the boat which Bill wishes to point out to caution Mr. Nile about Whether such known perils should form part of the contract Has Mary been fully apprised of all the legal implications and other commercial terms and conditions of the proposed contract of charter Is she agreeable for all the terms 2. Are there any previous contracts or arrangement for the boats on the dates on which Mr. John Nile would like to use the services Are there any previous contracts pending for the boat on the dates and time on which Mr. John Nile would like to charter the boat (It is necessary that the point that there is no other pending contracts to be performed by Mary to be mentioned in the contract.) It will be explicitly agreed between Mary Johnson and Mr. John Nile that latter will not be responsible or put to any hardship by reason of the existence of any other pending contracts. Are there any pending legal or other disputes about the ownership title of the boat or in respect of its past performance which may hinder the commercial purpose of Mr. John Nile (It will be clearly mentioned in the contract that Mary will be personally held responsible for all costs and damages of such legal complications in case if there are any and it affects the commercial venture of Mr. John Nile. 3. What are the ideas of Bill Johnson with respect to the arrangement of the crew and other amenities for the boat Is Bill aware of the responsibility he is undertaking for the orderly conduct of the crew of the boat in case he is arranging them for Mr. Nile (Once agreed by him this would be incorporated in the contract as one of the terms) Has it been discussed between Bill and Mr. Nile about the provision of other amenities and maintenance of the boat including the cost of men and materials for such maintenance (iii) Legal Position: According to Australian Contract Law, any formation of a contract requires four basic elements to be clearly identified. They are; an offer and acceptance, a valid consideration, the intention among the parties to crate legally binding obligations and the rights and obligations of each of the parties must be complete and certain. Janni (2005) Offer and Acceptance: Contractual agreement is emanated when an offer is made by one party and accepted by the other party and only when the acceptance of the offer is communicated to the offeror the contract comes in to existence. The existence of an offer is a question of fact determined on a case to case by case basis. In the instant case the offer and acceptance has not so far been clearly spelt out between Mr. John Nile and Mary Johnson and hence a draft of the proposed terms of the contract need to be exchanged between Mr. Nile and Mary for the acceptance of the broad terms of the proposed commercial venture. The case of the Carlill v Carbolic Smoke Ball Company is an example of offer made even through an advertisement can be treated as an individual offer. In this case the smoke ball company announced a reward of 100 to any one who contract influenza after using its carbolic smoke ball and the reward was advertised through a newspaper. Mrs. Carlill used the smoke ball and her using the smoke ball was held as acceptance of the offer and she was awarded 100, since she contracted influenza after consuming the smoke ball. Consideration: In order that a promise to be treated as a legally enforceable contract it must be supported by a valid consideration. The consideration gives rise to two requirements namely; a benefit or detriment to be incurred and there should be a definite link between the benefit or detriment the promise made to claim such benefit or detriment. In the case of Mr. John Nile and Mary Johnson; there is a clear promise from Mary to offer her boat for charter by Mr. Nile. However the benefit for which she had agreed to execute the promise is still not certain as the telephonic conversation of Mr. John Nile does not specify any consideration that he is going to part with for Mary agreeing to let the boat be chartered. In the case of Australian Woollen Mills V Commonwealth; The common wealth promised to pay a subsidy for any purchase of wool for local purchase. The Mill purchased large quantities in the next two years and later on when the subsidy scheme was suspended the Mill was asked to pay back the subsidy as it was holding large stocks. The Mill sued to enforce its claim for the subsidy. Held that the purchase of additional wool by the Mill could not be said to be in exchange for the Commonwealth's promise to pay the subsidy and hence no consideration was provided. Hence there can be no claim for the subsidy. Intention of the Parties and Certainty: There should be clear consensus among the parties and the terms of the contract should be certain and clearly expressed. In this case the contract between John Nile and Mary, despite being oral, there is no consensus established and the certainty of the terms is missing. In order to be legally enforceable the contract should be complete and the parties should understand their rights and obligations clearly. Upper Hunter County v Australian Chilling: In this case UH purchased electricity in bulk and sold to Australian Chilling. The agreement provided for automatic changes in the rates according to changes in the cost of Upper Hunter County. The issue was to decide whether there was certainty in the associated costs. Held that the concept of automatic changes in the rates according to the changes in the costs is certain and enforceable. Reference: Janni (2005) Contract Notes Janni.net http://www.jaani.net/resources/law_notes/contracts/ Read More