Question 1 (10 Marks)
Flyways Airlines Ltd signs a contract with Boeing Corporation Ltd for Boeing to build a new aircraft. On average, Flyways would make $500,000 profit per day from using such an aircraft.
The contract has 678 terms. Term 65 says that the plane must be able to travel 9,000 km at 700 km per hour. Term 457 says that the aircraft must have an in-flight video system capable of showing 27 channels of entertainment to passengers.
After the contract is signed, Boeing sends to Flyways a package containing a large number of documents, including the contract itself and examples of the color scheme that will be used. In the middle of these documents there is also a new document headed ‘Liability Limitation’, the key part of which states as follows:
The liability of Boeing Corporation Ltd for breach of contract is capped at $400,000.
When the plane is delivered, its engines areas required, but, due to confusion at the factory, the wrong software has been loaded into the entertainment system, which has only 21 channels. It would take a week to re-configure the software.
Advise Flyways Airlines fully as to what its legal position is, citing relevant case law.
Question 2 (15 Marks)
Bob runs a company which manufactures and sells computer equipment. He relates the following set of facts to you:
On 1 January Bob receives an email from Mike Jones which reads: “I offer to purchase 30 Toshiba Satellite laptops for $ 300 each, inclusive of GST, delivery and insurance”. In response, on 2 January Bob sent an email to Mike saying “I accept your offer, but the price would have to be $300 plus GST. On 3 January Mike sends an email back saying “No, I can't agree to that”. On 5 January Bob then sends an email saying “OK, I accept your offer of 1 January”, however when he sends the computers to Mike with an invoice for $9,000, Mike sends the computers back and refuses to pay for them, saying that he has purchased computers elsewhere.
On 10 January, Bob sends a letter to Tom stating “Please send me 200 Pentium 5 hard- drives at $50 each”. On 12 January Tom puts a letter into the post stating “OK – I will deliver the hard-drives before the end of the month. Bob subsequently finds that he no longer needs the hard drives, and on 14 January sends Tom an email saying “Please cancel my order of 10 January”. Tom’s letter reaches Bob on 15 January, and the hard- drives are delivered a few days later with an invoice for $10,000, which Bob refuses to pay.
Steve has done favors for Bob, such as looking after Bob’s cat when he (Bob) went on holiday. On 1 February, Steve says to Bob “I need a new computer for my travel agency”. Bob says “OK, because you looked after my cat, I’ll give you a new computer”. Bob then changes his mind and says to Steve: “Sorry, mate, trading has been bad these last few weeks – I just can’t afford to give you the computers”.
Bob is thinking of buying a delivery van. He has been in negotiations with Capital Motors, whose sales manager is Mary. One Monday morning he sees a form sent by Mary in which she offers to sell him a Toyota Hilux 3000 automatic with air conditioning for $33,000. The top sheet of the form contains a line which says “I agree to the purchase of this vehicle as specified in this document” and with a space for a signature and date. Bob sets the document aside on his desk, and it soon gets mixed up with piles of other paperwork. Later during the day, he signs the form, thinking that it was the front page of another contract he had been sent by a supplier of microchips. He gives it to his office manager, Tim, and says “Send this by fax”. A few days later he receives a call from Mary asking him when he will pick up the vehicle. He tells Mary that he did not order a vehicle from her. When Mary tells him about the fax, he realizes what happened and tells her that he had sent it by accident and that he never intended to agree to the contract. She says “Too bad, we have a deal – I have already ordered another vehicle to replenish my stock”.