Solving Contract Legal Issues Case Study

Based on the facts given below, please solve the stated problems according the provisions of applicable statute and by stating the legal rights and liabilities of each party involved.

The administrators of UTM want to have a grand celebration for its 25th convocation. They entered into a contract with One, a famous singer to perform for two hours nightly for three nights during the said celebration. If One fulfils her contract, she will receive a sum of RM25000. During the celebration, One lost her voice and could only perform for three (3) hours only.

Solution 1 i:

For proper analysis of the legal issues that are between UTM and One the famous singer, I will like to apply the following five legal procedures in case analysis i.e. (1) To identify the underlying facts of the issues between UTM and One, (2) To determine the likely potential law questions that could be raised in those facts, (3) To identify the best applicable regulations and rules of law, (4) To analyze each facts with related application of the law, and (5) To formulate necessary conclusions on how the law would be applied. The above process is called FIRAC – The Facts, The Issues, The Rules, The Analysis and The Conclusion.

Facts

As evident that the above case falls under the law of contract of Employment, which is a legal agreement that comes into being whenever a party agrees to work for a known employer in expectation for monetary return. This could be seen above where One has agreed to perform for two hours nightly for three nights during the said celebration under employment agreement. The terms of the above contract are defined as the rights and obligations that bind UTM and One on their agreements and this term could come in two main forms i.e. express and implied.

Issues

The facts of the above case has shown that the main issue between UTM and One is breach of contract One’s inability to perform for the three(3) days that was offered to him by UTM under the employment agreement. Noticeably, the contract between UTM and One is a unilateral contract where UTM has clearly specified on performance as a condition upon which One could be paid. Specifically, UTM clearly specified where it stated that

They entered into a contract with One, a famous singer to perform for two hours nightly for three nights during the said celebration. If One fulfils her contract, she will receive a sum of RM25000.

And given the fact that contract is an agreement between two or more parties which creates the obligation to do or not do something, in this case One is to perform for two hours in three consecutive nights during the celebration upon which she could be paid RM25000. Meanwhile, a breach of contract come into being when one of the parties fails to perform its obligation as One has done in this case. Importantly, this contractual agreement is a unilateral contract that clearly specified performance as a condition upon which the contract could be binding.

Rules

The contract between UTM and One is a reward offers that usually falls under unilateral contracts. Under this agreement UTM (The offeror) that is offering the reward cannot force One the famous singer to fulfill the reward on the singing offer. An alternative to this case is the right of One the famous singer who happen to be the offeree to sue UTM for a breach of contract, however, this is only possible if UTM does not provide the RM25000 after One has successfully fulfilled the contract’s requirements (Performing for three consecutive days).

The law of contract has made this distinction because in unilateral contracts, there would be no contract until after the specified performance is complete. Since One the famous singer only sing for half days as specified by the contract, she cannot demand for payment since she failed to fully perform for three consecutive days as required by the offer from UTM. A related statute to this kind of agreement could be seen under section 2, part D and E of Malaysia contract Act 136 of 1950, where it states thus:

(d) when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;

(e) every promise and every set of promises, forming the consideration for each other, is an agreement;

Analysis

Any legal agreement where only one of the parties makes a legally enforceable promise is referred to as unilateral contract. A good example is the insurance contract which is a unilateral contract given the fact that only the insurance company that has made the promise of future performance and under a unilateral contract only the offeror that could be charged with a breach of contract. Meaning that UTM can not charge One the famous singer for a breach of contract, a pure indication that only One the singer that can sue UTM. But very important to know under this is that One the famous singer has also not fully perform as required by UTM, an indication that there is no legal obligation from UTM to One the famous singer under their unilateral agreement.

Conclusion

In a final analysis, evidence and facts in the issue between UTM and One the famous have established that there was a breach of contract by One the famous singer based on the requirements in their unilateral contract that was offered by UTM for One to perform for three consecutive days. But notably in a unilateral contract is that it is only the offeree (One) that can sue the offeror (UTM) only and only after the offeree (One) has fully performed the requirements in the contract. But this was not the case in this unilateral contract. Also the contractual agreement clearly states that one must fully perform for three days before she could be paid RM25000. But contrary to the agreements, One lost her voice and could perform as required in the agreement. Very useful in this case study is the Act 136 of Malaysia Contract Act 1950 that has seriously helped in analyzing the contractual issues that are arising from One’s inability and the probable chance of her winning claims for damages in the breach of contract. In claiming damages as suggested above, One must have fully perform the conditions in the contract, which in reality she didn’t.

Question 1:

As part of his contractual terms with MinDef, N is supposed to deliver 1000 kilograms of imported fresh meat from New Zealand to the army camp weekly. One day the Ministry of Health of Malaysia announces that all imported fresh meats are banned due to the outbreak of nail and mouth disease abroad until further notice.

Solution 1 ii:

For ease of understanding, I will equally like to use the same procedure as shown above analysis the legal issues that could arise between MinDef and N by using the process called FIRAC – Facts, Issues, Rules, Analysis and Conclusion.

Facts

There are enough facts that established that the above case between MinDef and N direct falls under the law of contract of Sale of Goods, which is a legal agreement that comes into being whenever a party (offeror) agrees to sell something at a specified price to another party (offeree) who has the right to accept or reject the offer to buy such thing for at the specified expected monetary return. This is clearly seen above where MinDef and N mutually agreed for N to be delivering 1000 kilograms of imported fresh meat from New Zealand to the army camp weekly. Although the contract couldn’t continue as a result of the news from Ministry of Health of Malaysia that announces that all imported fresh meats are banned due to the outbreak of nail and mouth disease abroad until further notice.

Issues

The key issue under this case is that any of the parties either MinDef or N may want to sue for a breach of contract given that their agreement falls under the bilateral agreements that both parties mutually agreed to the terms and conditions of the contract. Mainly MinDef may want to sue N for his inability to supply the fresh imported meat as agreed, but is N at fault? If he is, can MinDef claim damages? The following legal rules and statutes below will clearly shield more light on the case between Mindef and N.

Rules

As evident in this case study that MinDef may wish to sue N for a breach of contract, and there is likely probability that N may also want to sue MinDef for a breach of contract as stated by both parties offer in the sale of imported fresh meat. A critical look at the Act 136 has shown that none of its section explicitly mentioned under which condition that a recipient of an acceptance to an offer could claim innocence on the inability or failures to deliver as agreed in the terms of the contract. But below is an alternative international law by the Convention of International Sales of Goods Art 79. Please note that very important to this case study is section 1 and 4 of the CISG Art 79:

CISG Art. 79

(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non receipt.

Other legal opinions on the above as it affect MinDef and N:

Evidence from Act 136 of the Malaysian Contract Act 1950 and the prepositions of the above article has indicated that the situation that led to N’s inability to continue to supply the fresh imported meat was beyond his control given the announcement by the ministry banning imported meat till further notice. Although section 4 of this article went further to say that N must as a matter of urgency communicate his inability to continue to supply the fresh imported meat to MinDef, but I think N felt there isn’t any need for that as long as the ministry announcement is a national issue that could easily get to MinDef.

Analysis

As a legal counsel to N, I will like to suggest that N doesn’t bother itself with issues arising from MinDef because the condition that led to its inability to continue the supply of fresh imported meat from New Zealand is a matter of Law that that is beyond its control. In support of arguments in favour of N on it inability is the evidence in section 26 of the Act 136 of Malaysia contract Act 1950 which state thus:

Agreement without consideration, void, unless—

26. An agreement made without consideration is void, unless— it is in writing and registered

(a) it is expressed in writing and registered under the law (if any) for the time being in force for the registration of such documents, and is made on account of natural love and affection between parties standing in a near relation to each other;

Meanwhile a ban on fresh imported meat by Ministry of Health of Malaysia is a matter of law that has invalidate the contractual agreement between MinDef and N, because the goods upon which the agreement was made has become an illegal item.

Depending on the facts in the aforementioned Arts, N has not breach any contract with MinDef and shouldn’t be liable to any damages under the law.

Conclusion

In summary, the Act 136 of Malaysia Contract Act 1950 and few sections from the Convention of International Sales of Goods Acts have seriously helped in analyzing the contractual issues that may arise from the contract of supplying fresh imported meat by N, and the probable chance of any of the parties winning their claim on damages in the breach of contract. In claiming damages as suggested above are the major alternative remedies that are available in the common law for any breach of contract. And in this case, both section 26 and CISG Art 79 have empirically stated that item that is illegal is void and cant be binding on any of the contracting parties in the law courts.

Question 1:

Upon his death, Lim wanted to bequeath all his properties to Tam, his foster son for his kindness and willingness to take care of him during his dying years.

Solution 1 iii:

It has been argued that there exist an offer whenever there is an objective inference from the purported Promisor’s (Here Lim) conduct or words indicating his intents of entering into a legally binding agreement, this should be without any further negotiations to the terms that the Lim (Promisor) is proposing when Tam (the Promisee) actually says ‘Yes to the offer’. A good judicial precedence on this could be seen in:

Gibson v Manchester City Council (1979): Please note that in this case the company’s rejection by the House of the Lords in Court of Appeal’s unorthodox method to the concept of an offer and acceptance.

In some other cases, the situations that normally assist in analyzing the case might be rather more artificial but sometimes they are nevertheless used because they provides a good basis upon which a just decision could be arrived at. Another good case to support this is:

G. Percy Trentham Ltd v Archital Luxfer Ltd (1993): Findings from this case revealed that after a full performance of the legal process, jurist finds it implausible to practically argue that in this case there was no existing evidence of a contract that has ever been concluded.

Linking the above evidences to the current case, one will agree to the fact that by Lim making of an offer, he as the Promisor is now surrendering the initiatives to Tam (the Promisee): he is generally leaving it to Tam to decide if there is going to be a contract or not between them. There are a lot of judicial precedent that have shown that in many situations the court had concluded that whenever there is general expressions of an offer and a subsequent acceptance will become a legally binding agreement. Importantly, whenever courts want to decide if there exists a contract will normally attempt to identify if there is an offer from one party (In this case Lim) and a subsequent unequivocal acceptance by another party (In this case Tam). However, if there is an identifiable element of an offer and acceptance, the contractual legal agreement will cease at the law courts. But Lim proposal is yet to be accepted by Tam, by this do we have a contract, the answer is no backed by the following evidences.

It is important to mention that an offer is like a proposal, where its acceptance will eventually lead to the enforceable legal contract. Finally indicating that there is still no established contract between Lim and Tam, because Lim only offered and Tam is yet to accept.

Question 1:

Azim agrees to dine out with his two (2) friends.

Solution 1 iv:

As argued in previous sections that a contract is “a promise or any set of promises that its breach will result in the enforcement of remedy by the law court. Contracts are a mutually binding agreement between two or parties. For a contract to be fully discharged and binding on the parties involved there should be mutual assent by both parties in terms of offer and acceptance. Referring the above arguments into this case, we could see that there is offer and acceptance between Azim and his friends. Though the question does not specified if either Azim or his friends have the legal capacity that empowers them to enter into legally binding contract or not. Below are some terms that should be present before we could establish a legally binding contract between Azim and his friends:

Mutual Consent

Under this, both Azim and his friends should have a mutual understanding of the content that the contract covers (Where exactly are they going). Azim should be aware of what the friends has to offer. Please refer to section 2, part b of the Malaysia contract Act 136 below for more evidence.

Offer and Acceptance

There should be a party (Azim’s friends) that offer and another party (Azim) that accepts such offer, anything outside this will nullify the contract. And please note that for the concept of offer and acceptance to exist there should be no counter offer by any of the party. Azim shouldn’t propose another venue for his friends nor should his friends change their initial offer of where they want to go. For more evidence in support of this, please refer to section 2 of the Act 136 of Malaysia contract Act 1950 which state thus:

Interpretation

2. In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:

(a) when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal;

(b) when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise;

Good Faith

It is compulsory for all parties in a contract to act in good faith, and that none should act in a manner that deceives the other. Neither Azim nor his friends should deceive each other, because for any contract that is not acting in good faith will be non and void.

No Violation of Public Policy

In order for any contract to be enforceable its subject and terms must not violate the public policy and regulations. Issues under this are illegal contracts, people dealing in drugs, theft etc. So Azim and his friends shouldn’t plan to dine in an illegal area.

Question 2:

An offer in a bilateral contract would not lead to a binding contract whereas an offer in a unilateral contract would lead to a binding contract. Explain.

Solution 2 a:

Yes it is true; a bilateral contract would not lead to a binding contract whereas an offer in a unilateral contract would lead to a binding contract. This is because a unilateral legal agreement is an agreement in where only one of the contracting parties will make a legally binding promise such as could be seen in the case between UTM and One the famous singer. Another good example of a unilateral contract is an insurance contract where only the insurers have made a promise of their future performance. Importantly, a unilateral contract is a contract where only one of the contracting parties would make an express promise, or wish to undertake a performance without its securing reciprocal agreements from the other contracting party.

Legally speaking, a unilateral contract is a one-sided contract where one of the contracting parties known as the offeror would make a promise or offer in exchange for an act by another party that is known as the offeree. Indicating that if the offeree should fully acts on the offeror’s offer or promise, such offeror is legally obligated by law to fulfill the contract, but notably is that an offeree couldn’t be forced to act or not act, this is because there is no return that has been promised to the offeror. A pure indication that shows that after such an offeree could have performed, there is only one enforceable promise that exists and that is the offeror.

A major difference between unilateral contract and that of a bilateral contract is that in bilateral contracts the parties will exchange mutual promises. The common business contract such as buying and selling are all under bilateral contract. Any reward contract is mostly under unilateral contracts. This is because the offeror that is offering the reward couldn’t impel the offeree or any other person to fulfill the reward offer. Note that under a unilateral contract an offeree has the power to sue the offeror for a breach of contract; however this is if the offeror failed to provide the promised reward after which the offeree must have fulfilled the contract’s requirements.

Question 2:

Moon and Star are ordinary member and minority share holders of Jupiter Sdn.Bhd, a registered company, conducting import and export business in clothing industry locally as stated in the Memorandum and Article (MNA) of the company. They have been regularly attending the annual general meeting (AGM) of Jupiter Sdn. Bhd. and follow the development of Jupiter Sdn. Bhd attentively. However they are shock to discover that Jupiter Sdn. Bhd had recently applied for a loan of $20 million in buying partly Egyptian cotton and canvas material used for making sport shoes. A check at Art. 18 of the MNA of the company revealed that company is permitted to conduct business in related fields deems suitable for the general benefits and profits of Jupiter Sdn. Bhd. Dissatisfied with the whole thing, Moon and Star are contemplating to take legal actions against Burn, the CEO of Jupiter Sdn. Bhd, alleging gross-misconduct. Explain;-

Question 2b:

Is the action of Moon and Star correct?

Solution 2b i:

No, their action is certainly not correct and will amount to legal benefits based on the following facts. As shown in the importance of Memorandum and Article of Association (MNA) of company below that:

The main objects of MNA is to specify information like what a company are permitted to do and what they are not permitted to do, indirectly constraining their capacity to act.

Basing our arguments on the above importance of MNA, one will see that the action taken by Jupiter Sdn Bhd is legally right, given the fact that a part of the question states that:

A check at Art. 18 of the MNA of the company revealed that company is permitted to conduct business in related fields deems suitable for the general benefits and profits of Jupiter Sdn. Bhd.

The above shows that Jupiter’s action is in line with the main objects of its company Memorandum of Association which serves as the constitution that governs its rules and regulations. In view of this, Moon and Star’s action to sue Burn the CEO of Jupiter Sdn Bhd is none and void and can never the light of a competent court of justice. And if care is not taken, Moon and Star may end up paying damages to Burn for deformation of character.

Question 2b:

What are the importances of MNA?

Solution 2b ii:

Both the Memorandum and the Articles of Association are legal documents that are drawn up by a lawyer, mainly for the establishment of a company. MNA is a document that is made up of two major parts – (1) The Memorandum of Association and (2) The Articles of Association. Below is a brief description of the importance of these two documents and some of its elements. As evidence that the Memorandum of Association of any company is the unique document that governs its relationship with the rest of the world. This document is primarily designed to communicate with the public on the company’s current state of affairs, as well as its objective of operating. This will enables the company’s stakeholders like its creditors, its suppliers and the shareholders in efficiently evaluating the extent of their current and future risk as it affect their shares. The Memorandum of Association is required to specifically state the company’s name and the type of business that it involves in, its objectives and missions, authorized share capital and a complete list of its original shareholders. The main objects of this document is to specify information like what a company are permitted to do and what they are not permitted to do, indirectly constraint their capacity to act. The Memorandum also assists in acknowledging where specifically the company has duly registered, and mostly includes some clauses on its property and its sources of income. This Memorandum of Association should be witnessed and then notarized as a notary public.

Contrary to the Memorandum of Associations, the Articles of Association in a company are the general rules and regulations that are governing the relationships between the company’s directors and shareholders. An article of Association also provides for the voting and the dividend rights of each share classes, as well as the restrictions that are on their transfer of shares. Both the Memorandum of Association and the Article of Association stands as the constitution of any company.

Therefore, it is worth mentioning here that if anyone enters in a contract with a company and if by any means such contract goes beyond the defined powers of the company as could be seen in its Memorandum of Association, such a contract will not be legally binding on the company. This is because it is a well established rules and regulation that any company can only do those acts that are permitted by its objects clause. Conclusively, it is advisable that anyone who will like to deal with any company must make it a point of duty to study such company’s Memorandum of Association.

Question 2b:

Whether Jupiter Sdn. Bhd has acted against the provisions of the MNA?

Solution 2b iii:

No, Jupiter Sdn Bhd’s action is line with the Memorandum and Article of Association of the company. And note that MNA serves as the constitution upon which the rules and regulations of a registered company are derived, and important to this question is the statement in the case that says thus:

A check at Art. 18 of the MNA of the company revealed that company is permitted to conduct business in related fields deems suitable for the general benefits and profits of Jupiter Sdn. Bhd.

Depending on the above facts has generally confirmed that the action of Burn the CEO of Jupiter Sdn Bhd is line with the rules and regulation that guides the contractual agreement between Jupiter Sdn Bhd and the World at large.