Business Law

Bill and Ben are best mates and love to sail together. They want to turn their sporting interest into a business. They decide to start their own company called Sensational Sails Pty Ltd (Sensational Sails). Bill and Ben design and manufacture sails for all size yachts and supply wholesale to retail outlets. Their company becomes very successful and soon they need more sophisticated machinery to ensure that their business is profitable.

Ben’s cousin Marc is also in the manufacturing business, supplying plant and manufacturing equipment to factories. Marc is the sole director and marketing manager for the company EquipU Pty Ltd (EquipU). On Monday Marc approaches his cousins and offers to sell Sensational Sails new sail making machinery that has just been developed in Italy. Marc claims that the equipment will improve output and efficiency in the sail making factory by 20%. He says he is prepared to sell the equipment to them for only $50,000. Marc says the offer will end on Friday at 5pm, and acceptance could be via email, fax or post.

Bill and Ben think that Marc’s offer is a very good and one which would enable Sensational Sails to increase production and profit. Bill and Ben are keen to accept Marc’s offer, but feel that they really should try to negotiate better terms. On Tuesday Bill sends Marc an email on behalf of Sensational Sails which states:

Sensational sails is very interested in your offer, however we believe that the new equipment will only deliver a 15% Return on Capital, so we are only prepared to pay you the amount of $30,000 for the machinery”

Marc is at a three day conference on Tuesday, Wednesday and Thursday, so has not read his email. Meanwhile Bill and Ben have reconsidered their position and are feeling nervous that they may have missed the deal because they haven’t heard back from Marc. They decide to accept EquipU’s original offer and on behalf of Sensational Sails post Marc a letter on Friday morning agreeing to purchase the Italian machinery for $50,000. Just to be sure, at the same time they email Marc. Due to problems with Sensational Sails ISP, the email is not received into EquipU’s system until 6pm Friday.

Over the weekend Marc meets with his old friend Pauli who just happens to be in the market for the same Italian sail making machinery. Marc owes Pauli a favour so wants to give the machinery to Pauli instead of selling it to Sensational Sails. On Monday morning Marc reads his emails and opens the post. He calls Bill and Ben and says the deal is off. Bill and Ben are very upset and want to force Marc to sell them the Italian machinery.

Question (a) 10 marks

Using the four-step process, discuss the element of agreement required for the formation of an enforceable contract. Have Sensational Sails and EquipU reached ‘agreement’ in relation to the sale of the Italian machinery?
Marc and his cousin Ben and friend Bill go for a sail on Saturday afternoon and manage to resolve their differences. They also conduct cordial negotiations regarding the sale of the machinery and the price. Bill and Ben agree on behalf of Sensational Sails to pay to EquipU the sum of $39,000 for the Italian machinery. Marc proceeds to import the sail making machinery from Italy and has it delivered to Sensational Sails factory for installation. He hands the invoice to Ben who says:

“Thanks Marc we really appreciate this and are very excited about the new machinery. We will organise the bank to transfer to you the amount of $30,000. We have deducted $9,000 because we did the catering for your wedding six months ago”.

Marc is furious and says to Bill and Ben that that is not the arrangement they came to and Sensational Sails has to pay EquipU the full amount of $39,000. Bill and Ben say that they don’t need to stick rigidly to the terms of the agreement as it is all between family and friends anyway.

Question (b) 10 Marks

Assume that the parties have reached agreement as required by the law. Using the four-step process, consider whether the other elements required for an enforceable contract are present. Can Marc enforce the contract against Sensational Sails Pty Ltd?
PART B – Short answer question (5 marks)

Why are terms of a contract sometimes called “conditions” and sometimes “warranties”? What cases do you rely on for your answer?