Business Law - Cohen v Cohen - Case Study - Assessment Answer

Business Law Assignment

Assignment Task

Derrick runs a sports tourism agency in Perth. His business provides clients with unique opportunities to attend high profile American sporting events, and meet professional athletes in a private setting. His business also organises the flight, hotel and restaurant reservations for these tours, so that clients can better enjoy the overall experience.

In March 2016, Derrick’s cousin Carmelo, phones Derrick and asks him to book Carmelo a place on the NBA (National Basketball Association) finals tour to take place in June 2016. For the cost of $30,000, participants of this tour are secured tickets to every finals game, and get to attend pre-game functions with past greats of the game such as Michael Jordan and Magic Johnson. Derrick needs to check the availability of places left on that tour, so he says to Carmelo that he will email him back once he has figured out what he can offer him. Later on that day Derrick emails Carmelo the following:

“Hey Cuz. Good to hear from you today. I have one available spot left on the NBA finals tour running in June 2016. The package includes premium travel and accommodation in each city, so the best I can do pricewise is $25,000. I can’t wait around with this for long, so if you are in, you need to let me know by close of business tomorrow. An email or text will be fine. Cheers Derrick.”

The next morning Carmelo reads the email and is happy with everything that Derrick has stated except the price. A qualified accountant who tries to help out his family whenever he can, Carmelo has done Derrick’s personal and business tax returns for the past 10 years for a nominal fee, which has saved Derrick a lot of money over the years. Two hours before the close of business, Carmelo sends Derrick an email that reads:

“Thanks for letting me know that Derrick. I am in on the tour, but I am only willing to pay $20,000, as times are a bit tough with the accounting business. The rest you can cover for all of that work that I have done for you over the years.”

Upon receiving Carmelo’s email, Derrick immediately responds by writing, “Fair enough and all good. You have my bank details so deposit the $20,000 by the end of the month. You are going to enjoy this trip Cuz!”

In late May 2016, a week before the tour is to start, Derrick goes over the tour documentation, and realises that because he had dealt informally with Carmelo concerning his participation on the tour, he had not booked flights and accommodation for him. Because of the popularity of this impending finals series, only the cheapest flights and accommodation are able to be secured for Carmelo at this late stage. When Derrick notifies Carmelo of this, Carmelo is upset, and insists that Derrick take the cheap flights and accommodation, and give to him Derrick’s premium travel and accommodation for the tour. Derrick refuses to do this, citing the need to stay with the rest of the touring party at all times. After hearing this, Carmelo notifies Derrick that he will be seeking legal advice on the matter.

Question (a)

Using the four-step process, discuss the elements of intention and consideration required for the formation of a contract. In particular, consider whether these elements have been met in order for there to be an enforceable contract between Carmelo and Derrick.

Question (b)

Assume that the elements of intention and consideration required for the formation of a contract exist. Using the four-step process, discuss whether the element of agreement required for the formation of an enforceable contract can be established. Can Carmelo require Derrick to provide him with the premium travel and accommodation for the tour?

Solution (a)

Issue

Whether the elements of intention and consideration are present to enforce a contract amid Carmelo and Derrick?

Law

The contract essentials are offer, acceptance, consideration, intention to create legal relations and capacity of the parties. The two important contract essential are: (The LawHandBook, 2016)

1. Legal intention- Legal intention signifies that both the offeror and the offeree must have an intention to abide by the contract legally and if any party is in violation of the terms then the contract is not enforceable in law. The courts favor the presence of legal intent in commercial contracts and assume that the same is not available in domestic contracts. But, in Jones v Padavatton (1969) it was held that if evidence can be laid down then a binding contract can be made when the parties are in family relations. (Clark J, 2016)
2. Consideration - To make any agreement enforceable in law, a support (cash or kind) is required which moves amid the parties is called consideration. A consideration is one which supports the promises of present or future. Consideration to support past promises are past consideration is not enforceable. It is only when the promisor himself decides to pay for the services then the past consideration is valid (Ipex Software v Hosking (2000)). (McKendrick & Liu, 2015)

Application

Derrick and Carmelo are cousins. Derrick offered a premium package to Carmelo @ $25,000. However, in exchange of the package, Carmelo desires that he can only take the package at $20,000 and the rest of the amount he can cover for all of that work that have been done by Carmelo for Derrick over the years, that is, he has done Derrick’s personal and business tax returns.

It is submitted that Carmelo has provided consideration for the act which is already done by him and the consideration does not move from the promisor (he work is done for Derrick and he must provide the consideration in order to make it valid, that is, exception to past consideration). Thus, the consideration was past and is not enforceable in law.

However, though both the parties are cousins in relation and hold a family relationship but the intention of them is to abide by the contract legally.

Conclusion

So, there is presence of legal intention amid Derrick and Carmelo but the consideration provided by Carmelo was passed in nature and is thus invalid

Solution (b)

Issue

1. Whether the elements required for the formation of contract are established?
2. Can Carmelo enforce Derrick to provide him with the premium travel/accommodation?

Law

The main contract essentials are offer, acceptance, consideration, intention to create legal relations and capacity of the parties. Thus, it is important to analyze the basic three elements of a contract. (The LawHandBook, 2016)

1. When offeror desires his expectations to be fulfilled by an offeree and he communicates the same with a hope of approval then it is called an offer.
2. The valid offer when confirmed by the offeree without bringing any changes then it is called acceptance. But, when variation is brought to the offer then it is called a counter offer. The counter offers kill the original offer and is considered as a new offer and the offeree is then regarded as a new offeror.
3. The parties must have reached at the age of eighteen and are mentally stable in order be capable.

Application

It is assumed that intention and consideration exist.

Derrick through an email has made an offer to Carmelo wherein he summits that one package of premium travel/ accommodation is available @ $25,000. He let the offer open till close of business tomorrow. He expects an acceptance through an email or text.

Against this an offer is again made by Carmelo wherein he accepts the package @ $20,000. He submits that the rest of the amount can be covered for the work that have been done by Carmelo for Derrick.

Thus, a counter offer was made by Carmelo who cancels the original offer of Derrick. Thus, the new offer was now made by Carmelo. This new offer is affirmed by Derrick.

Thus, a valid offer and acceptance is made resulting in a valid agreement. Further, the parties are major and sound and thus are capable. Also, consideration and intention is presumed. Thus, all contract essentials are present.

Now, the main term of the contract was that Derrick will provide with premium travel/accommodation. However, now, he is providing cheapest flights/accommodation.

Thus, the only option with Carmelo is to sue Derrick with breach of contract and cannot persuade Derricks to provide with Premium flights/accommodation.

Conclusion

So, all elements that are required for contract formation are established.

But, Carmelo cannot compel Derrick to provide with premium travel and accommodation, however, he can sue for breach of contract.