Netmaster Pty: the Case of Alfred and the Pokolbin Inn

Introduction

The subject of contracts comes in handy when one is handling matters relating to business. When interpreting contracts, judicial precedent is used to adjudicate over conflict. In the course of this interpretation, the courts apply themselves to pointing out the terms of the contract, which have been defined as the foundational phrases that make up the contract (Elfenbein, & Lerner, 2004). This is particularly relevant because the distinction between terms and mere phrases can lead to liability where the maker of some statements did not anticipate any. A basic understanding of what constitutes a contractual term can be obtained by considering the particular clauses or provisions without which the contract could not stand (Gibson & Fraser, 2013; Macaulay, 1963). Also of importance is the distinction between conditions and warranties. The specific standardized definitions of what a condition or warranty is have eluded judges over the centuries (Farnsworth, 1999). What is clearly agreed upon is that the breach of a condition gives the aggrieved party the veto to rescind the contract, or end it, whereas the breach of a warranty only empowers the aggrieved party to seek damages for any losses incurred due to such breach, and the contract subsists (Gulati, 1995, p. 89). In addition, noteworthy at this point is the fact that simply because either party has mentioned the term ‘condition’ or ‘warranty’ in the wording of the contract does not mean that the courts shall automatically construe the respective phrases as such (Gibson & Fraser, 2013; Haapio, 2004). The court maintains the discretion to decide what forms a condition and a warranty, although if the parties clearly spell out the instances that shall lead to avoidance of the contract of the requirement of damages the courts shall respect such terms. Finally, the factors that can vitiate a contract include misrepresentation, mistake, undue influence, duress, and unconscionability (Peden, 1982, p. 9). These factors can be viewed as “lack of consent” in case one looks at the subject of contract from the perspective of freedom of contracts theory (Simpsons Solicitors, 2013, p. 4; Harris, & Raviv, 1979; Anderlini, Felli, & Postlewaite, 2006). With this in mind, it is safe to proceed to the specific circumstances of Alfred’s vignette.

The Basis for Compensation from the VVCC

Brief background

Alfred has entered several contracts in this incident. The first is between him and the conference delegates whereby Alfred promised to make presentations. In turn, they were to pay $2500 to participate in the conference. However, these contracts are collateral to the one between Alfred and View Valley Conference Centre (VVCC) and subsequently to the one between Alfred and Angelina. At the onset of this legal opinion, it is critical to point out several standard facts. First, for a contract to be completed, there has to be “an offer, an acceptance, and consideration from both parties and the intention to create a legal relationship” (Bolton, & Dewatripont, 2005). The contract needs not to be in writing for it to be enforceable as this restriction is limited to real estate. However, other factors also affect the validity of the contracts. These include the applicable statutes and trade usages (Anderlini, & Felli, 1999, p. 28; Shavell, 2006; Macneil, & Gudel, 2001; Battigalli, & Maggi, 2002). This means that, whereas the parties may seem to have failed or overdone a certain portion of their entering a contract as per contract law if the act under suspicion is an accepted and even expected trade usage, the courts will find the contract valid. A contract and equity intersect followed by the application of equitable principles such as “he who comes to equity must come with clean hands” (Charny, 1991, p. 1830).

Alfred of NMPL entered a contract with VVCC in November 2012 to use their conference facilities for his presentation to international guests who were looking for a quality experience. He picked VVCC primarily for the center’s advanced computer programming, which was compatible with the programs being supported at NMPL. He paid $16000 for the facilities for January 14th and 16th 2013 conference proceedings. This amount included the lunch for the guests. The VVCC’s bistro and restaurant are normally open for business between 12-2 pm and 6-9 pm every day. Subsequently, the first-day conference meeting proceeded without any event, except for the delayed lunch, which was served at 4.30 pm. This caused dissatisfaction among the guests. On the next day, the earthquake caused the venue to be indisposed. In exchange, the VVCC offered to set up a makeshift venue for Alfred to complete his conference, which he declined.

If Alfred were to contain compensation from VVCC, it would have been to the tune of $8000 because he had used the facilities for the first day despite the delay in lunch delivery, and complaints were only presented much later after the earthquake caused further complications. However, Alfred has waived his right to compensatory damages for the inconvenience caused by VVCC because he refused their counter-offer. Let us revisit the matter in light of all the facts. The delayed lunch was clearly a breach of some sort. However, what exactly was breached?

The seafood lunch did not form the primary element of the contract between Alfred and VVCC because as indicated, the primary reason why Alfred entered a contract with VVCC specifically was due to their computer technology, which was aligned to that of the NMPL. Consequently, if there had been a deficiency regarding the computer systems, Alfred would have acquired the veto to rescind the contract, because this term had attained the status of a “condition”. However, all that is mentioned of the lunch is that the lunch was part of the contract it was paid for. However, it arrived two and a half hours late. This sounds more like a warranty than a condition and it shall not allow Alfred to rescind the contract. However, the breach of a warranty, whereby the said breach contributed to Alfred’s losses due to the consequent disappointment and dissatisfaction of his clients is sufficient justification for requiring damages from the VVCC. Nevertheless, quantifying the number of damages is a complicated matter because the extent of the loss is not exactly easy to measure.

On the matter of the earthquake causing the venue to be unusable, this was an act of God (Chocheles, 2010). Whereas Alfred may well go ahead and claim compensation from VVCC, the VVCC can successfully use the defense of the Act of God. An Act of God refers to an event that is caused by natural forces that could not possibly have been prevented by the exercise of reasonable care or foresight (Schwartz, & Scott, 2003, p. 552). In such cases, the court shall usually find the defendant who is in breach. However, there are exceptions, where the defendant could have mitigated the damage. However, they failed to do so, they shall be liable to the extent of their contribution to the damage.

However, in Alfred’s case, nothing is mentioned of awareness of VVCC’s part that there would be an earthquake on the valley of their residence, or of their obligation to prevent against the same. However, they (VVCC) were very prompt in their feedback or response because they offered to bring in a portable building and set it up appropriately for Alfred to proceed with his conference, which Alfred himself declined. To that extent, Alfred himself waived his right to damages that would have followed from the effects of the earthquake. It would be insufficient to rely on the late delivery of lunch the previous day as grounds for vitiating the contract because the primary reason why he was contracting with VVCC was not lunch, but computer technology, with which he had no qualms (Heller, & Spiegler, 2008, p. 887).

The Basis for Compensation for Angelina at the Pokolbin Inn

Some contracts are known as inchoate or standard form contracts. They usually appear in fine print, especially behind tickets and receipts. The rules guiding the interpretation of these are stricter in relation to those governing other common contracts because in standard form contracts the party buying or receiving the service is less likely to study the fine print in the back of the receipt (Gibson & Fraser, 2013; Irlenbusch, 2006). Consequently, the case shall turn on factors like whether or not the parties had a culture of contracting that should have granted the other party sufficient opportunity to know the terms and conditions indicated, or if anyone came out and expressly pointed out the terms to the buyer, or, the time that the receipt was given (Hadfield, 1990, p. 931). If the receipt is only granted at the conclusion of the contract, the party receiving the receipt could not reasonably have been expected to read the terms before entering the contract.

When Alfred called Angelina on 15th January to arrange for the use of Pokolbin Inn for conference purposes, he was making an offer for the use of the facilities at a certain fee ($12000). In return, he expected an acceptance of the same. He said that the seating of all 39 of his international guests was of primary importance. Therefore, this was a condition in the contract. Angelina ‘guaranteed’ to him that, by close of business, the manager of Pokolbin Inn would have obtained clearance for increasing the inn’s capacity to 40 from 35. Therefore, up to this point, the contract was for service by description, meaning that, before Alfred purchased the service of facilities for the conference, he pointed out to Angelina what he had in mind, and she consented.

To this extent, Alfred had already made a counteroffer to the standard form contract that he would sign at the end of the deal. Angelina had accepted this counter offer, meaning that it was the basis of the formation of the contract. Of specific interest in this analysis is the disclaimer or exculpatory clause, which was clause 19. It states,

“The hirer acknowledges and agrees that all the terms of this agreement between the owner and the Pokolbin Inn are contained in this written agreement and that no representation, warranty, covenant or other matter or thing whatsoever not specifically contained herein shall have any force or effect or be of any validity whatsoever” (Macneil, 1978, p. 876).

Exculpatory clauses are those clauses in a contract, which purport to exclude one of the parties from liability for wrongful acts (Macneil, 1978, p. 876). These kinds of clauses are more often featured in contracts between an individual promisee and an institutional promisor. This case is an interpretation that is derived from case law, particularly in Russ v. Woodside Homes, Inc., 1995 where it was held, “exculpatory clauses relieve one party from risk or loss or injury in a particular transaction or occurrence and deprive the other party of the right to recover damages from loss or injury” (Kreitner, 2006). The wording is usually to the effect of excluding the institution from liability for any action or omission that causes any type of injury to the promisee because of the promisor’s negligence.

This clause automatically places the sentiments of Angelina promissory as opposed to having formed part of the contract. As such, the grounds that Alfred should rely on when claiming for compensation would be a misrepresentation, as opposed to breaching of contract, which would be the claim, if the misrepresentation had formed a part of the contract. However, it should be noted that Alfred could prepare a claim for breach of contract and insinuate that the increase in the inn’s capacity formed a primary part of the contract albeit oral (Kalnins, & Mayer, 2004, p. 211). Then he could add as an addendum an alternative claim for misrepresentation, in case the court holds that the capacity issue did not suffice as a contractual term (Macaulay, 1963).

In deciding whether a term falls inside or outside the contract, courts usually decide based on several factors including the context of the statements, meaning the time they were made in comparison to when the contract was entered. They gauge the amount of time between making the promises and entering the contract (Posner, 1992, p. 114). Secondly, courts look at whether the subsequent documents included the representation in writing. Thirdly, they consider whether the representations were meant to be promissory. Fourth, they consider the level of knowledge of each party to gauge the inequality of knowledge that could have led one party to rely on the special skill or knowledge of the other. Finally, they look at whether the matter was meant to be of great importance to the contract.

In Alfred’s case, all these statements are answered in the affirmative. This means that the statement made by Angelina can amount to a misrepresentation. However, there is a distinction as to the various types of misrepresentations ranging from innocent to fraudulent and negligent misrepresentation. In the case of Angelina’s misrepresentation, it has an element of deceit, especially considering that the officer that came to inspect the room stated that this was the second time in that month in which the Pokolbin Inn had been issued with that warning concerning their capacity.

It is noteworthy that the misrepresentation was to do with the ability of Robert to convince the authorities to increase the Inn’s capacity. There is also the matter of the exclusion clause, which prevented any liability from attaching to the Inn due to any representations. This clause 19 shall only stand valid in a court of law if the representation was innocent as opposed to being fraudulent or negligent. Judging by the previous notice already issued by the relevant authorities, the statements made by Angelina were not innocent misrepresentations.

At the very least, they were negligent misrepresentations as can be construed from the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. It is crucial to point out with an element of innocence that is evidenced by the inclusion of truth that the stamen was carelessly made (Nyste´n-Haarala, 1998, 2008). Because of the said statements, Alfred entered the contract with the inn. As such, he ended up losing $10000 in the cumulative amount that he had to reimburse the international guests who were forced to leave the conference room. This means that he reserves the right to rescind the contract and seek damages resulting from his loss (Joskow, 1990).

Conclusion

In conclusion, based on the arguments made about Alfred, it is apparent that Alfred should pursue the Pokolbin Inn for compensatory damage with more vigor than he should the VVCC. At the VVCC, he has little to no chances of being rewarded damages because the earthquake was an act of god, and the food that was delayed the previous night had not formed a primary part of the contract. Additionally, he had not complained immediately after the delay, but subsequently after the earthquake transpired. The fact that he was offered alternative arrangements for concluding the conference stands as mitigation on the part of VVCC. Therefore, he cannot obtain full compensation from this particular venue.

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