BUSINESS LAW

This program contains weekly tutorial exercises to be undertaken by students studying Business Law. Students should print a copy of this manual and attempt the prescribed exercises prior to tutorials.
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Tutorial Program
Notes to Students
These materials comprise a tutorial program that is designed to incorporate the language and learning program developed by Helen Murphy from Teaching and Learning Services at VU, into the original Business Law Tutorial Program.
The program assists students in the unique requirements of law subjects, providing strategies and approaches for them to enhance their success in law studies.
Students should acquaint themselves with the resources provided via the unit’s VU Collaborate space as well as the VU Library website, which contains much useful information about Business Law.
Apart from containing important information for students about the subject, this site also contains practical exercises and strategies for understanding cases, writing assignments and preparing for examinations.
Up-to-date information concerning the subject will also be posted on the site during the semester.
STUDENTS ARE STRONGLY ENCOURAGED TO LOG IN TO THE VU COLLABORATE SPACE REGULARLY.
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Tutorial One – Unit Overview
As students may have their week 1 tutorial prior to their first lecture, there is no prescribed tutorial exercise. Students are nonetheless required to attend their allotted tutorial in week 1.
The purpose of this tutorial is to give students an overview of the unit and familiarise students with the main requirements of studying Business Law, specifically:
– A brief outline of the main areas of study
– Familiarity with some of the materials available on VU Collaborate
– The various assessment tasks and due dates
– What is expected of students in tutorials / participation
– A brief introduction to the AGLC (the Australian Guide to Legal Citation) and the VU Plagiarism policy
– An explanation of the IRAC process for answering legal problem questions in tutorial exercises and examinations (see next page).
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Using the IRAC approach to problem questions
While there is no mandatory method of answering problem questions in law exams, one option that many students find helpful is to apply the “IRAC” approach. This involves the following steps:
1. The “I” is for Issue. The first step is to state the legal issue raised by the question.
2. The “R” is for Rule. The second step is to set out the legal rule or rules that a court would apply to deal with this issue. This will typically be a summary of the relevant law and cases.
3. The “A” is for Application. The third step is to apply the law and cases that represent the legal rule or rules to the facts stated in the question.
4. The “C” is for Conclusion. The final step is to state the conclusion or conclusions that follow from the application of the rule or rules to the stated facts.
Example of using IRAC method
Question:
Maud is an elderly lady who lives in a house in need of substantial renovations. She cannot afford to pay the cost of such renovations. She has a son, Bruce, who is an experienced tradesman and renovator of older homes. She asks Bruce if he would do the renovations for her and promises Bruce that, on completion of the work, she will transfer to Bruce a one third interest in the house. Bruce duly completes the work but Maud is now refusing to transfer to him the promised interest in the house. Advise Bruce.
Suggested answer using the IRAC method:
ISSUE: The issue raised by this question is whether the essential component of intention to be legally bound exists.
RULE: The legal rule is that there are 4 essential components of a contract, all of which have to be proved to exist unless the other party agrees that a contract exists. The four essential components are offer, acceptance, intention and consideration.
In order to decide whether intention to be legally bound exists in any given fact situation, the courts apply two presumptions. A presumption is a probable outcome, but it can be rebutted (defeated) by strong contrary evidence.
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The first presumption is that if an agreement is made between two people concerning a domestic or social arrangement, the court will assume or presume that there was no intention to create legal outcomes. (Balfour v Balfour, Coward and Motor Insurers Bureau). This presumption can be rebutted by calling strong and compelling evidence to rebut it. (McGregor v McGregor, Merritt v Merritt).
The second presumption is that if an agreement is made in a business or commercial context, the court will assume or presume that there was intention to create legal obligations. (Edwards v Skyways Ltd). This presumption can also be rebutted, but it is more difficult to rebut than the first presumption (Rose & Frank Co v Crompton Bros Ltd).
When testing for intention, the courts use an objective approach, using the “reasonable person” as the benchmark. The objective approach is preferred in civil litigation, as the subjective approach, used in many criminal trials, is not productive.
APPLICATION: On the facts given, the parties are mother and son. This activates the presumption of non-intention. However, the work undertaken by Bruce is presumably substantial and this would effectively rebut the presumption of non-intention. A reasonable person would say that legal consequences were intended in these circumstances.
CONCLUSION: Since all of the components of a contract appear to exist on the facts given, Bruce would most likely be able to successfully sue Maud if he chose to do so.
Notes for Students
1. In this example, 6 cases have been mentioned. Given that large number of case references, there is clearly no time to go into detail on the facts or the decisions in those cases. The number of case references will depend on the area of law being discussed.
2. If using the IRAC method, you may use paragraph headings as I have done above, but this is optional.
3. I stress again that the use of the IRAC method is not compulsory. It is only a suggested method that has been developed to assist students who have experienced difficulty in establishing a structured way of setting out their answers to problem questions.
Further information on the IRAC method is provided in the prescribed text Parker and Box, Business Law for Business Students, 3rd Ed., pages 345-356
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Tutorial Two – Reading and Understanding Cases
The purpose of this tutorial is to introduce students to some frequently used legal terms, the concept of a case and to learn:
– How to use cases in the study of law.
– How to read cases and elicit the necessary information, to be able to apply it to other fact situations (i.e. to decide new cases).
– How to practically apply the doctrine of precedent.
In Business Law, most of the cases you will be expected to read and understand will be summaries of the cases rather than the full court judgment that is recorded in law reports.
In your assessment tasks, you will be required to discuss the details of cases to illustrate the application of legal principles and to cite them as an authority for these principles in your legal arguments when you are answering problem questions.
In legal argument, whenever you state a legal principle you are expected to also state (i.e. “cite”) your authority for that principle. Such authority usually is a case or a piece of legislation (laws made by parliament). As has been outlined in the introductory notes, cases explain the law as it has been interpreted and applied in disputes between parties.
Students need to study the important elements of cases because they are required to apply the rules of law that have been used in these cases to decide the outcome of new similar disputes given in problem questions.
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Exercise 2.1
In the table below, match the commonly used legal term with its correct definition.
1 Deakin v Webb (1904) 1 CLR 585
2 Butterworth’s Concise Australian Legal Dictionary, 3rd Edition, 2004, Lexis Nexis Butterworths
3 Ibid
1.Stare Decisis
A. A legal inference or belief that something is true even though it is not proved.
2. Ratio Decedendi
B. Judge made (unwritten) law. Derived from the UK legal system. Law developed, interpreted expanded and modified by previous judicial decisions
3. Obiter Dictum
C. Document that outlines the respective powers and duties of State and Federal Governments.
4. Specific Performance
D. A court order compelling a breaching party to fulfil their contractual obligation.
5. Rescind
E. Comments by Judge/s that do not from part of the decision in a case. Not required to decide present case.
6. Common Law
F. Lat – The reason for the decision. Binding on lower courts under the doctrine of precedent.1
7. Statute
G. Parliament made (written) law. Interchangeable with the terms ‘Act’ and ‘Legislation’
8. Federal System
H. An act or omission outside of the law. Invasion of a legal right, failure to perform a legal obligation.
9. Jurisdiction
I. The boundaries and scope of the power of the court to determine legal disputes or breaches.
10. Breach
J. A system of national government where power is divided between states and a central government. 2
11. Presumption
K. Lat – The decision stands. The doctrine under which a court is bound to follow previous decisions by higher courts, unless they are wrong in law.3
12. Constitution
L. To avoid, cancel, annul a contract. To treat a contract as if it never existed.
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Exercise 2.2
1) What is the required standard of proof in criminal and civil cases?
2) Explain in your own words what ‘on the balance of probabilities’ means.
Reading a Case Study
*The following exercise contains a case summary from which students are required to extract important information.
In De Jong v Carpenter (1982) 2 BPR 9524, the Supreme Court of New South Wales was asked to determine whether a contract existed between the parties in the following circumstances:
The plaintiff wished to purchase certain land from the defendant. To this end, the defendant’s solicitor prepared a contract that provided that the sale was subject to the purchaser obtaining finance from a particular source within 28 days.
He retained a copy of this agreement and sent a counterpart to the purchaser’s solicitor.
The defendant later instructed his solicitor to insert a further condition in the contract that rendered completion by a certain date “of the essence of the contract”.
The defendant’s solicitor duly inserted this amendment in his copy of the contract, but the purchaser’s solicitor did not contain the alteration.
Subsequently, both solicitors agreed to change the period of time referred to in the finance clause from 28 days to 14 days. No evidence was presented to show that the purchaser had agreed to such a change.
Signed contracts were exchanged in due course, but before the sale was completed the defendant purported to rescind the contract. The purchaser sought specific performance.
The court held that there was no contract between the parties because they had in effect failed to reach agreement on two terms that were material to the contract:
? First, the time of the essence clause had been inserted by the defendant’s solicitor without the knowledge or permission of the purchaser or his solicitor.
? Second, the consent of the purchaser’s solicitor to reducing the period of time from 28 days to 14 days was not supported by any evidence that his client had authorised such a change.
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In the absence of such evidence, no assumption could be made that the purchaser had agreed to such an alteration and therefore no binding contract existed between the parties.
Exercise 2.3
From the case of De Jong v Carpenter, answer the following questions:
? Who is the plaintiff and who is the defendant?
? What are the relevant (controversial) facts?
Explain the decision of the court in your own words, noting:
? Can terms be added to a contract or altered after a contract is entered into?
? Was there a contract between the parties?
? What did the court state was a requirement for there to be a contract?
? What were the two factors the court noted that indicated that there was not a proper agreement between the parties?
? What is the legal principle that is confirmed in the case of De Jong v Carpenter?
Exercise 2.4
The following question is an example of a problem question, which is the type of question the final exam is mainly comprised of.
Required
Applying the doctrine of precedent, using the case of De Jong v Carpenter answer the problem question below.
Attempt to use the IRAC method of answering problem questions such as this. The IRAC method is explained further in the prescribed text on pages 345-347. A proper answer to this question should be approximately half of one page long.
Belinda, a 19 year-old student, decides that she wants to buy a car. She visits “Lora’s Tough Cars” and spots a second hand car of the make and model she likes.
Belinda discusses buying the car with Lora and stipulates that the car must have done only 50,000 kilometres (the odometer shows the car has done 47,000 kilometres).
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They agree that Belinda can pay half the price in cash and that credit arrangements will be provided for the balance.
Lora prepares a written agreement and Belinda signs it even though certain details regarding the engine number have yet to be filled in. Lora keeps it so that these details can be added later.
Arrangements are made for Belinda to attend the next Wednesday to pay the cash portion of the purchase price and pick up the car.
After Belinda leaves, Lora starts to worry about Belinda buying on credit (she thinks Belinda might not be able to make the regular payments) and she inserts into the contract a provision stating that Belinda’s parents have to act as guarantors for the amount provided by credit.
She rings Belinda but she is not at home and Lora speaks to Belinda’s elder sister. Lora explains the amendment she has made to the agreement and Belinda’s sister says that Belinda will probably not mind because she has said how much she likes the car.
Belinda’s sister forgets to tell her about the telephone conversation.
In addition, while Lora is preparing the car for delivery she discovers that the odometer has been wound back by a previous owner and the 47,000 kilometre reading considerably understates the actual distance the car has travelled.
She inserts another clause into the contract stating that the odometer reading is incorrect and that the true reading is considerably more. She does not tell Belinda about this amendment.
Three days before the Wednesday, Belinda decides that she cannot afford the car and wants to get out of the arrangement to buy it.
Can Belinda get out of her agreement with Lora, or can Lora legally force her to comply with the terms of the final version of the written agreement?
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Tutorial Three – Interpreting Legislation
The purpose of this tutorial is:
– To gain an understanding of the two sources of the law, and the relevant rules of statutory interpretation, and
– To complete an exercise in the use of legislation in solving a problem
In the first tutorial, the exercises required students to examine a case, identify the legal principles applied in it by the judge and apply them to a new fact situation. This is applying common law, which is one of the primary sources of the law.
The other primary source of the law is legislation, or laws made by parliament. For instance, the road traffic rules are created by legislation. Judges are often called upon to interpret legislation and decide how the words of the legislation might apply to a particular fact situation.
Generally the words in statutes are to be given their natural meaning according to the intention of parliament when the statute was made (“enacted”). Occasionally when there are disagreements the different methods of interpretation come into play. The following exercises will examine the rules that have been developed by the courts and by Parliament to interpret legislation.
Exercise 3.1
Prior to 1984, Australian courts adopted the “common law rules of statutory interpretation”, which were the “literal rule”, the “golden rule” and the “mischief rule” (see Parker and Box, pages 58-59)
1) In your own words, define each of the common law rules above, citing cases as examples where relevant.
In 1984, the Australian Parliament and the Victorian Parliament amended and passed their respective statutes, exercising their undeniable right to dictate to the courts how legislation should be interpreted in future.
The “statutory rules of interpretation of statutes” now prevail over the “common law rules of interpretation of statutes”.
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The purposive approach to statutory interpretation must be adopted if there is any dispute or disagreement as to the true intention of Parliament. Section 15AA of the Acts Interpretation Act 1901 was inserted in the Act by an amendment to it in 1984. It provides as follows: –
“In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.”
Given that the Acts Interpretation Act is a Commonwealth Act, it applies to the interpretation of all Commonwealth statutes. Each State has passed corresponding legislation for interpreting State legislation.
The Victorian Parliament passed the Interpretation of Legislation Act 1984, s35 of which is effectively the same as s15AA of the Commonwealth Act. The Victorian act applies in the interpretation of all Victorian legislation.
Both acts also provide that if a court is unable to ascertain the purpose or object of the Act from the words of the Act itself (which is inherently unlikely), it may refer to extrinsic (outside) to assist in that process.
The Commonwealth Parliament also inserted section 15AB into the Acts Interpretation Act 1901. It provides for use of extrinsic materials and set out which sources may be used. s15AB states:
“in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provisions, consideration may be given to that material …”
Each of the corresponding State Acts also contains a similar provision to s15AB.
Sources that can be employed in statutory interpretation include:
• documents attached to the Act itself;
• relevant reports by Royal Commissions, parliamentary committees, etc. made to parliament before the Act was enacted;
• any treaties or other international agreements referred to in the Act;
• explanatory memorandum relating to the Bill;
• second reading speeches;
• any documents declared to be relevant by the Act;
• relevant material in the Journals of the Senate, Votes and Proceedings or other official records of Parliament.
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2) Explain the ‘purposive rule’ outlined above in s15AA of the Acts Interpretation Act 1901, using your own words.
3) If the underlying purpose of the Act is not sufficiently clear from looking at the Act itself (intrinsic materials), what should the courts do?
Exercise 3.2
Statutory Interpretation
In this exercise, you are required to interpret and apply fictional legislation to the facts provided.
While driving his car, Lee does not see a pedestrian on the road. The pedestrian takes avoiding action and Lee sees the pedestrian at the last moment.
Consequently, Lee narrowly avoids hitting the pedestrian but the pedestrian falls to the ground. Lee continues on for some distance and then decides to stop his car. He puts his head out the driver’s window and looks back at the pedestrian.
He sees that several people have come to the aid of the pedestrian who is sitting up on the roadway and appears all right. He then drives off without speaking to anyone.
These events take only a few seconds. But he has been recognised and when the police call on him, he admits the truth of the above facts.
Lee is charged with breaches of both parts of the following road traffic regulations:
“Where a motor vehicle is involved in an accident in which a person is injured or property is damaged, then the driver of the motor vehicle must:
a) Stop the motor vehicle; and
b) Immediately render such assistance as is necessary.”
Required
Use the relevant rules of statutory interpretation to determine whether Lee is guilty of either of the offences.
To answer this question the meanings of some key words in the regulation have to be determined.
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Look up the words, ‘accident’, ‘injury’ and ‘stop’ in the dictionary and write down the definitions.
Does using the literal rule provide a satisfactory outcome in this case?
What is the intention of the Parliament in enacting the regulations?
Exercise 3.3
1) Is there any difference in meaning between the following: statute, legislation, Act of Parliament? Give examples.
2) Explain what is meant by the term ‘delegated legislation’?
3) (a) Identify the type of legislation listed in the following links:
(i) http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/
(ii) http://www5.austlii.edu.au/au/legis/vic/consol_act/rsa1986125/
(iii) http://www5.austlii.edu.au/au/legis/vic/consol_reg/rsr2009289/
(b) Which of the above laws would regulate Lee’s driving if it had occurred in the State of Victoria?
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Tutorial Four – Intention to Create Legal Relations
The purpose of this tutorial is:
– To consolidate the concept of what a contract is, its status and effect on the parties.
– To understand that no contract exists unless the parties intend that there be a contract.
– To learn that in contract law the issue of intention of the parties is decided “objectively”; to examine what this means, and how it is different from deciding a question “subjectively”.
Exercise 4.1
In order to determine whether parties intend to be legally bound by an agreement, the courts have developed two presumptions. Answer the following questions, citing the relevant cases which support your answers.
1) Explain in your own words the presumptions applied by the courts to determine intention to be legally bound.
2) Are the presumptions absolute or are there exceptions?
3) What does the term ‘rebuttable’ mean?
4) In order to rebut the presumptions, which party bears the onus of proof?
5) Complete the summary table on the next page:
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Type of Agreement
What is presumed about intention to create legal relations?
What does rebuttal involve? Commercial Case example?
?
? Case examples of successful/unsuccessful rebuttal
Family/Domestic/Social Case example?
?
? Case examples of successful/unsuccessful rebuttal
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6) The courts apply both subjective and objective tests in their judgments. Objective tests are applied to civil cases, while subjective tests are applied to most criminal cases.
(a) Which test does the court employ to determine the intention of the parties to be legally bound?
(b) Using your own words, explain the objective test and the subjective test.
(c) What are the characteristics of the ‘reasonable person’ or ‘innocent bystander’?
Exercise 4.2
Read the case summary of Wakeling v Ripley (1951) SR (NSW) 183 (Parker and Box, p79). In one or two sentences each:
1) State the facts of the case
2) Explain the legal issue that the court had to determine
3) State what was the decision of the court?
4) Identify the relevant facts that were important to the court in reaching its decision
The following exercises comprise 2 problem questions relating to intention to be legally bound. Attempt to answer the questions using the IRAC method. Your answers should be approximately one half of a page in length. You must cite the applicable rules and cases to support your answer where relevant.
Exercise 4.3
Maud, an elderly woman, owns a house that is in need of repairs. Maud does not have the money required to pay for the repairs, which are substantial.
Maud’s son, Bruce, is a tradesman and a very competent renovator and repairer of houses. Maud asks Bruce if he will do the necessary repairs, in return for which she agrees to transfer to Bruce ownership of one third of the property.
When the repairs are completed, Maud refuses to transfer the promised one-third interest in the house to Bruce.
Advise Bruce.
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Exercise 4.4
George, an accountant, promises his daughter, Amy who is aged 20 and is completing the final year of an accounting degree, that he would pay her $200 a day if she worked in his accountancy practice each weekend.
Amy agrees to do so, and has worked in the practice at weekends for a total of 20 days, but is unable to continue doing so because of study pressures.
George has not paid Amy for any of her work, and she now seeks your advice whether she may successfully claim the sum of $4,000 from George.
Advise Amy as to her legal right to bring an action against George for breach of contract.
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Tutorial Five – Invitation to Treat/ Offer/Acceptance
The purpose of this tutorial is:
– To understand that an offer is the first step in the formation of a contract.
– To distinguish between an invitation to treat (no contractual significance) and an offer (which must be promissory, that is, it must contain promises).
– To understand that an objective test is applied to determine the intention of the parties.
– To understand the basic rules of offer and acceptance
– To reinforce skills on tackling cases/ how cases are used/extracting key principles.
Exercise 5.1
1) (a) In your own words, define the terms ‘offer’ and ‘invitation to treat’?
(Parker and Box – Chapter 6)
(b) How are they different from one another and why is this important?
2) From Parker and Box – Chapter 7)
(a) Define acceptance (Parker and Box, pp 96-97)
(b) Define counter-offer (Parker and Box, pp 111-112)
2) From Parker and Box (pages 89-91) what are generally regarded as invitations to treat? (cite the names of relevant cases)
Exercise 5.2
(a) Read the case of Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 (Parker and Box pages 81 and 92 as well as the following summary, which includes extracts from the judgment of Bowen LJ) and
(b) Answer the questions in Exercise 5.3:
Facts: An advertisement was issued to the public, advertising a smoke ball to cure influenza. One hundred pounds was to be paid as a reward to any people who fulfilled the conditions of the advertisement, using the smoke ball
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according to the directions who were not cured of their influenza or cold. The advertisement stated that one thousand pounds was lodged at the Bank for this purpose.
Mrs Carlill purchased a smoke ball. She claimed to have used it as directed, but was not cured of her ailment. She contacted the company seeking the advertised reward. After the company refused to pay her the reward, Mrs Carlill sued for breach of contract.
The company put forward multiple arguments as to why there was no contract between them and Mrs Carlill. The defendants contended that:
1) ‘… the advertisement is rather in the nature of a puff or a proclamation rather than a promise or offer intended to mature into a contract when accepted’
2) ‘… the vagueness of the document shows that no contract whatever was intended’
3) ‘… one cannot enter into a contract with the whole world’
4) ‘… there was no check on the part of the persons who issued the advertisement, and it would be an insensate thing to promise 100 pounds to a person who used the smoke ball unless you could check or superintend his manner of using it’
Held: The advertisement was an offer made to the world, and that if people performed conditions of the advertisement, then a contract was formed.
Reasoning:
1 & 2) it was important to understand how an ordinary person would construe the advertisement. Bowen LJ stated that ‘… in order to arrive at a right conclusion, we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and read by the public.’
The plain meaning of the advertisement indicated that, because one thousand pounds was lodged at the bank for the purpose of drawing from it to pay someone from the public the amount of one hundred pounds if the person fulfilled the conditions of the advertisement, then it was intended to be acted upon.
The advertisement was not a typical advertisement (an invitation to treat or mere puff), but rather it was an offer that would become a binding contract the moment a person fulfilled the conditions.
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3) One cannot enter into a contract with the whole world, but can make an offer made to the world that will ripen into a contract when someone performs the conditions of the advertisement.
Bowen LJ stated that the advertisement was ‘… not a contract made with the entire world… It is an offer to become liable to anyone who, before it is retracted, performs the conditions and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the conditions on the faith of the advertisement.’
Note: A person must act (accept) with knowledge of and in reliance of the offer for a contract to be formed: see R v Clarke (1927) 40 CLR 227 (Parker and Box page 107)
4) Even if one makes an extravagant promise, it can still be binding. Bowen LJ stated ‘… that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.’
Exercise 5.3
1) What arguments were used by the Carbolic Smoke Ball Company to try to establish that there was no offer?
2) How did the court decide that the advertisement should be read?
3) Why did the court decide that the advertisement was an offer and not an invitation to treat?
4) To whom was the offer made? Who could accept it, and how? How could the offer have been properly withdrawn?
5) Now answer the following problem question, using the IRAC method and Carlill’s case as a guide.
In the window of your local convenience store John and Tuan see a note offering to pay a reward of $200 for the safe return of a lost dog.
While practising golf in the local park, John and Tuan see a dog that matches that description and rescue it from being attacked by another dog.
The two boys return the dog to its owner Bill, but he refuses to pay the reward of $200.
Bill says that he knows the law and that there is no contract for two reasons:
? First, he did not mean the offer to be taken seriously. He made the
offer merely to placate his family who were distressed about the dog
being lost.
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? Secondly, the boys had not communicated their acceptance of his
“offer”.
Advise Bill whether John and Tuan are legally entitled to be paid the reward?
Exercise 5.4
Read the cases of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) 1 QB 401 and Fisher v Bell (1961) 1 QB 394 (Parker and Box pages 89-90) and answer the following questions:
1) If a customer selects items from a store shelf, are they accepting the store’s offer to sell the items at the nominated price or are they offering to buy the item?
2) If a person sees an item in a store window, goes into the store and says they want to buy it, are they accepting an offer from the store to sell the item?
3) In the above scenarios, when is the contract formed?
4) Answer the following problem question, using the IRAC method. Cite the relevant cases and principles to support your answer.
While browsing in a second hand shop, Jane notices two apparently identical chests of drawers. One chest of drawers is a genuine antique and the other is a reproduction or imitation.
The price tags ($4,000 and $200 respectively) have been accidentally swapped so that Jane believes that she can buy the antique (normally $4,000) for $200. She tells the shop owner that she will buy the antique for $200 and produces the money for her purchase.
The owner realises that a mistake has been made and insists that the price should be $4,000. He therefore refuses to sell the antique to Jane. Jane seeks your advice as to her rights.
Advise Jane whether a contract exists between her and the shop owner, citing cases to support your answer.
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Exercise 5.5
Complete the following table:
Term
Definition
Capable of being accepted?
Yes/No?
Case Example Offer
Invitation to treat
Counter-offer
Request for information
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Exercise 5.6
Read the cases of Hyde v Wrench(1840) 49 ER 132, Stevenson Jacques & Co v McLean (1880) 5 QBD 346 and the cases on revocation of offer (Parker and Box pages 111-115) and answer the following problem question using the IRAC method. Cite cases in your answer.
Dave is a car dealer in Essendon who offers to sell a new car (A Daihatsu Sirion) to Bill for $16,500 on Sunday 30 December 2009, stating that the offer will remain open for five days.
Three days later, on Wednesday 2 January 2009, Bill rings Dave and says ‘My friend wants to buy a Sirion as well. If we buy two Sirions will you sell them to us for $32,000?’
Dave replies that he cannot sell Sirions under the list price of $16,500 and that he cannot therefore sell them two Sirions for $16,000 each.
The next day, 3rd January 2009, Bill arrives at Dave’s showroom with a bank cheque for $16,500 and wants to take delivery of his new car.
Dave tells Bill that unfortunately due to a devaluation of the Australian Dollar, the price of the car (which is fully imported) is now $18,500.
Advise Bill whether he can insist on delivery of a new Sirion for $16,500.
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Exercise 5.7
1) Describe in detail the rules relating to acceptance (Parker & Box, pp96-104) by completing the table below. The rules have been identified for you but you need to refer to the textbook for more information in order to write more detailed notes about them, and about the relevant cases.
Rule
Description
Cases?
1.
Acceptance must be clear, unambiguous, and unequivocal
o Generally, a ‘conditional acceptance’ does not meet these requirements
Masters v Cameron ( 3 categories of conditional acceptance identified where one type is a valid acceptance and the other two are not)
2.
Acceptance should meet offeror’s requirements
o Method(s) of acceptance prescribed
o Where method of communication is
instantaneous
o Postal Rule of acceptance
3.
Acceptance must be in reliance on the offer
4.
Acceptance must be communicated and received, and must occur before offer is revoked
o Exception: Postal Rule of acceptance
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Exercise 5.8
Conditional Acceptance
1) Read the case of Masters v Cameron (Parker and Box pages 97-99). The High Court set out 3 possible scenarios relating to ‘conditional acceptance’ in this case.
Briefly explain the three scenarios. Which scenario occurred in this case, according to the court?
Exercise 5.9
Communication of acceptance and the postal rule
1) State the general rule about the requirement for communication of
acceptance.
2) In Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 (Parker and
Box pages 81 and 92) did Mrs Carlill need to satisfy the requirement of
communication of acceptance?
3) (a) Using your own words, including an explanation of when the postal rule
of acceptance will apply and the effect of the rule.
(b) Does the postal rule apply to counter-offers or revocations? (Parker &
Box, pp103-5)
(c) Which case originally established the rule and which case confirmed
its application in Australia?
(d) How can the postal rule of acceptance be avoided by parties who rely
on the postal service during negotiations?
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Tutorial Six – Consideration
The purpose of this tutorial is:
– To elicit the key legal rules of consideration.
– To use the history of the development of the principles of promissory estoppel as an example of judge-made law.
– To introduce the concept of equity.
Students are required to study the rules of consideration from their lecture notes and textbook prior to this tutorial.
Exercise 6.1
1) Consideration is required in simple contracts but not in formal deeds. Explain this statement (Parker & Box, p117)
2) In one or two sentences, define the term ‘consideration’
3) Complete the following table:
Type of consideration
Features
Valid?
1. Present (executed)
2. Future or prospective (executory)
3. Past
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3) List the 6 rules of consideration in the table below. Cite cases in your answer.
Rule 1
Parker & Box, p118
Rule 2
Parker & Box, p118-121
Rule 3
Parker & Box,p122-123
Rule 4
Parker & Box, pp123-125
Rule 5
Parker & Box,pp125-126
Rule 6
Parker & Box, pp126-127
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4) Read the cases Stilk v Myrick, Hartley v Ponsonby and Williams v Roffey Bros & Nicholls (Contractors) (Parker and Box, pages 128-130) and answer the following questions:
a) What was the principle that was established in Stilk v Myrick?
b) In Stilk v Myrick (above) did the plaintiff provide consideration to the ship’s captain by agreeing to perform his duties under his pre-existing contract? Was this enough for him to ‘buy’ the captain’s new promise for extra wages?
c) Why was the outcome in the case of Hartley v Ponsonby and why did the two cases differ?
d) The courts approached the same issue differently in the more recent case of Williams v Roffey Bros. What did the court say about performance of an existing contractual obligation in that case?
e) What were the ‘additional benefits’ conferred by Williams to the defendant in that case?
NB: In Williams v Roffey Bros, the defendant was provided with tangible commercial benefits, this decision would not apply where the benefit provided was, e.g., avoiding inconvenience.
Answer the following problem questions, applying the relevant rules of consideration using the IRAC method. Cite the names of cases where relevant.
Exercise 6.2
Kim buys a used car from Huyen for $5,500. Kim pays Huyen the $5,500 and after she gets the keys of the car from Huyen she asks Huyen if the car has been serviced regularly.
Huyen replies, “Of course the car has been regularly serviced just like the manufacturer recommended”.
Three days later Kim discovered that the car has not been serviced for more than 2 years, during which time it has been driven more than 40,000 kilometres.
Advise Kim whether she can successfully sue Huyen for damages for breach of contract.
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Exercise 6.3
Terry contracts with Dave to paint Dave’s house for $4,500. When the job is less than half finished, Terry gets a great job offer in Adelaide and tells Dave “I’m sorry I can’t finish your job as I have accepted another job offer in Adelaide”.
Dave is very worried about being able to move into his house on time and says to Terry “I’ll pay you an extra $1,000 if you can finish painting the house before you go to Adelaide.”
Terry agrees to this proposal and finishes Dave’s house as promised. Dave pays Terry only $4,500 and refuses to pay the other $1,000.
Advise Terry as to his rights.
Exercise 6.4
One of the fundamental principles of consideration is that there must always be an exchange of consideration
? for a contract to come into existence, and
? generally, in order to vary or change the terms of an existing contract ( though exceptions apply)
Furthermore, this exchange of consideration must be an exchange of present or future (executory) consideration but never past consideration.
This means that for each new promise to be binding and enforceable, it must be “bought” by a new promise from the other party, which cannot be something already owed or promised by that other party. This principle was determined in Pinnel’s case and later confirmed in the case of Foakes v Beer
Read Parker and Box pages 131-133 and answer the following questions
1) Explain in your own words the rule in Pinnel’s case.
2) What are the exceptions to Pinnel’s rule? (Cite cases where relevant)
Now answer the following problem question using the IRAC method. You must state the relevant rules and cite cases.
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3) Tom borrows $1000.00 from Sam. It is agreed that Tom will repay all the money on a specified date.
On the specified date Tom tells Sam that he cannot repay all the money but that he thinks he could raise $700.00. He asks Sam whether he would accept $700.00 in full settlement of the whole debt.
Sam agrees to accept the $700.00 in full settlement of the debt. On the basis of Sam’s promise, Tom manages to round up the $700.00 and pays it to Sam.
The next week Sam sees Tom and demands the $300.00 balance of the loan.
Sam argues that Tom has given him no new consideration for his (Sam’s) promise to let Tom off $300.00 of the debt and so his promise is not binding and cannot be enforced by Tom.
Advise Tom whether he is legally obliged to pay Sam the remaining $300.00.
Equity/Promissory Estoppel
Equity is an area of law that can be called upon to supplement the rules of common law (like the rules of consideration now being discussed), or to find a way around those rules.
It can be called upon in some circumstances when the implementation of common law rules would result in an unjust or unfair outcome.
In this way equity is used to arrive at a fair or just result.
Exercise 6.5
Read the case of Central London Property Trust Ltd v High Trees House Ltd (often referred to as the High Trees House case – Parker and Box pages 133-135).
1) What was the problem in this case that involved the rules of consideration (discussed above)?
2) Write down the factors that the judge said had to be established for the new defence of promissory estoppel to be used in that case.
3) Explain whether it was necessary for the tenant to have provided consideration.
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Development of the principles of promissory estoppel in subsequent cases:
The High Trees House case was only the start of the development of promissory estoppel.
Parties in subsequent cases attempted to argue that their cases were similar enough to High Trees House for the principles of promissory estoppel to apply to their cases.
Courts had to decide whether to amend, restrict or to extend promissory estoppel when considering the different facts presented by these new cases.
Exercise 6.6
Read the case of Combe v Combe (Parker and Box Page 135) and answer the following questions:
1) What were the facts of this case?
2) What effect did this case have on the use of promissory estoppel by parties in a legal action?
The High Court of Australia confirmed the operation of promissory estoppel in Australia and set out the elements required in Legione v Hateley. Other cases in Australia have further modified the operation of the doctrine.
Read Parker and Box, pages 135-139 and answer the following questions:
3) What are the elements that must be proven to successfully argue promissory estoppel, as set out in Legione v Hateley?
4) Describe what you think is meant by detriment in promissory estoppel? (see Je Maintiendrai P/L v Quaglia case) – (actual or prospective?)
5) From the above cases, it can be said that promissory estoppel could be used ‘as a shield, but not as a sword’. Explain in your own words what is meant by that phrase.
The High Court decision in the case of Waltons Stores (Interstate) Ltd v Maher considerably changed the way the doctrine operates in Australia.
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6) Was there a contractual relationship between the plaintiff and defendant in this case?
7) What was the effect on the doctrine of promissory estoppel as a result?
8) What restriction did the NSW Court of Appeal state in Autotel Ltd v Franklin Selfserve Pty Ltd place upon the decision in Waltons Stores (Interstate) Ltd v Maher?
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Summary of acceptable and unacceptable consideration:
“Good (acceptable) consideration”
? Services rendered after earlier promise to pay. See Lampleigh v Braithwaite, also see Re Casey’s Patents; Stewart v Casey.
? Doing more than is required under an already existing legal or contractual obligation. See Hartley v Ponsonby and also see Glasbrook Bros v Glamorgan County Council.
? Prepayment of part of a debt. See Pinnel’s Case
? Substitution of a chattel for cash as a method of payment.
? Something that is trivial, but still of tangible value. See Chappell & Co v Nestle Co Ltd.
? Paying a debt owed by another. See Hirachand Punamchand v Temple.
“Bad (unacceptable) consideration”
? Past consideration. See Roscorla v Thomas and also see Eastwood v Kenyon.
? Doing no more than is required under an already existing legal or contractual obligation. See Collins v Godefroy and Stilk v Myrick.
NB: Williams v Roffey Bros and Nichols (Contractors) and also see Musumici v Winadell Pty Ltd. for recent developments in this context.
? Payment of a lesser sum than is owed. See Pinnel’s case and also see Foakes v Beer.
? Intangibles, such as “natural love and affection”, handshakes, kisses, cessation of harassment. See White v Bluett.
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Tutorial Seven – Contents of Contract
The purpose of this tutorial is:
– To understand the rules that determine how a court decides which promises or statements are included in the contract as terms and which are not’?
– To examine the different ways a verbal promise can be treated.
– To explain the different categories of terms of a contract and their different effects.
– To understand what exclusion clauses are, their purpose and the rules concerning the use of exclusion clauses.
Exercise 7.1
1) There are the 3 categories of terms that can be found in a contract. These are the ‘contents’ of the contract (Parker & Box, p 152-154).
Complete the table below:
Type of Term
Definition
Case example where term appeared
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2) Read the cases of Poussard v Spiers and Pond and Bettini v Guy and answer the following questions (Parker & Box, p 152-154):
1) In Poussard v Spiers and Pond which type of term did the court decide was breached?
2) In Bettini v Guy which type of term did the court decide was breached?
3) Given the facts of the above cases are similar, explain in your own words why the court reached a different conclusion in each.
4) What is an ‘intermediate’ or ‘innominate’ term?
5) In which case was the concept of ‘intermediate’ or ‘innominate’ terms created?
Exercise 7.2
In the table below, match the type of term with the corresponding remedy for breach thereof:
1. Condition
A. Innocent party entitled to damages only.
2. Warranty
B. Innocent party entitled to damages or, rescission and damages, depending on the severity of the consequences of the breach.
3. Intermediate/Innominate
C. Innocent party entitled to rescind the contract and/or claim damages
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Exercise 7.3
Parol Evidence Rule (Parker & Box, p 142-144).
1) Explain the Parol Evidence Rule in your own words.
2) Do you think there are good reasons for the existence of the rule, and if so, what are the reasons?
3) By reference to the table below, state the 6 exceptions to the rule. Cite cases where relevant in your answer.
Exceptions to Parol Evidence Rule
Case Example
1.
2.
3.
Relevant Factors?
?
?
4.
5.
6.
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Exercise 7.4
Collateral Contract
1) Define a collateral contract (Parker & Box, p 146). Is it separate from the main contract?
2) An example of a collateral contract was found in the case of De La Salle v Guildford (Parker & Box, 146-147)
a) In De La Salle v Guildford, was the verbal promise made prior to the signing of the document enforceable? Why?
b) What were the factors that must be proven to successfully argue the existence of a collateral contract?
c) Did the finding of a collateral contract in that case overcome the problem of the parole evidence rule?
Exercise 7.5
Third Exception to the Parole Evidence Rule
1) Read the case of Van Den Esschert v Chappell (Parker & Box, p 143-144) and answer the following questions:
a) Was the verbal (spoken) promise made prior to the signing of the document in Van Den Esschert v Chappell enforceable?
b) What kind of contract did the court state that the agreement between the parties was?
c) What two factors did the court state must be proven if a verbal statement is to be considered a term of a partly written, partly verbal contract?
d) What is the difference between ‘relative importance’ and ‘motivation’ in regards to ‘partly written, partly oral’ and ‘collateral’ contracts?
Exercise 7.6
The partly written/partly oral exception to the parol evidence rule and the collateral contract argument are somewhat interchangeable. With that in mind, answer the following problem question using the IRAC method. Your answer should discuss both possibilities.
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Marcel wants to buy a used car. He knows the make, model and colour of the car he wants to buy. He visits several car dealers who can supply the type of car he wants.
In discussions with one dealer, Yvonne, she tells Marcel that if he chooses to buy the car from her, she would fit the car out with high quality new tyres.
Marcel decides to buy the car from Yvonne, but the written agreement he signs with Yvonne makes no mention of this promise.
A month after the purchase is completed Marcel is advised by his motor mechanic that the tyres on the car are of inferior quality. Marcel wants to make a claim against Yvonne.
Advise Marcel whether he can sue Yvonne for breach of contract.
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Tutorial Eight – Exclusion Clauses
The purpose of this tutorial is:
– To understand what exclusion clauses are, their purpose and view of the courts towards them
– To understand the rules concerning the use of exclusion clauses in different scenarios and apply them
Exclusion Clauses
It often happens that a party to a contract will seek to limit or exclude the liability which normally be incurred should he or she breach the contract. This is done by incorporating an exclusion clause into the contract (sometimes referred to as ‘exemption clauses’). Exclusion clauses are commonplace in these contracts and we enter these contracts as we go about our daily business without even realising it.
Generally speaking, the courts look upon exclusion clauses unfavourably. It is said that the courts’ view of exclusion clauses is that of ‘tolerance under sufferance’, as generally the parties to the contract are not of equal bargaining power.
The courts know this, so they aim to support vulnerable consumers. The courts therefore employ the ‘contra proferentum rule’ – this means that in the event of any ambiguity, they construe the clause in favour of the customer.
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Note: There are different rules that apply to scenarios involving exclusion clauses, depending on whether the exclusion clause is contained in a signed or unsigned document, or printed on a sign.
Contractual situations
Examples of Exclusion Clauses:
Car park
When you enter in a car park, you may read a sign that states:
Patrons using this facility do so at their own risk. The management takes no responsibility for damage to vehicles or to contents of vehicles or loss of contents of vehicles whilst in the car park.
Drycleaner
When you read your docket after delivering your suit to be cleaned it may state the following:
The Management will take the utmost care when cleaning items, but it cannot be responsible for damage to fabrics that are susceptible to chemicals and heavy duty cleaning.
Gymnasium
Other organisations, for example, gymnasiums, will not take responsibility for items and valuables that are left in changing rooms by patrons. Their notice in the changing room may read as follows:
Patrons who leave valuables and clothing in this changing room do so at their own risk. The management will not take responsibility for stolen or lost items.
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Read Parker and Box, Chapter 10 and answer the following questions:
Exercise 8.1
Signed Documents (Parker & Box, p 159-163)
Read the case of L’Estrange v Graucob and answer the following:
1) If a person signs a document containing contractual terms (such as an exclusion clause) what generally is the effect of the signature?
2) How does the case of Curtis v Chemical Cleaning & Dyeing Co provide an exception to the ‘signature rule’?
3) What were the contractual ‘documents’ that the customers had signed in the above two cases?
3) What does the term ‘non est factum’ mean?
4) What elements must be established to successfully plead ‘non est factum’?
Exercise 8.2
Unsigned Documents (Parker & Box, p 163-173)
1) Give examples from the cases of the types of unsigned ‘documents’ containing exclusion clauses that a business operator might try to rely upon.
2) If a customer does not sign a document that contains an exclusion clause, can a business operator still rely on the clause to limit or exclude their liability?
3) By reference to the table on the next page, what are the two rules used (which must be employed sequentially) for the courts use to determine the validity of an exclusion clause in an unsigned document. For each question the court asks, it employs a test. Cite case names for examples of each.
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Unsigned Document
Has exclusion clause been incorporated in the contract?
Case Example
? Issue 1
? Test?
(Only if this test is satisfied, proceed to
Issue 2)
? Issue 2
? Test?
(If this test is also satisfied, then the clause functions as a binding term even though located in an unsigned document).
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Exercise 8.3
Unsigned documents: Exclusion Clauses on Signs (Parker & Box, p 165-173)
1) What test is used to determine whether an exclusion clause on a sign is valid?
2) What is meant by the requirement of notice and why is notice important?
3) What did Olley v Marlborough Court decide about the timing of when notice of an exclusion clause is given?
4) What is constructive notice?
5) What does Balmain New Ferry Co v Robertson say about the use of signs to give notice of an exclusion clause?
6) What is meant by “a prior course of dealing” and how does it affect whether an exclusion clause applies?
7) What does the case of Hollier v Rambler Motors (AMC) say about how you decide whether constructive notice has been given?
8) Explain the ‘contra proferentum’ rule in your own words.
9) Explain in your own words how the ‘contra proferentum rule’ was employed in the case of D J Hill & Co v Walter H Wright P/L
Exercise 8.4
Answer the following problem question on exclusion clauses using the IRAC method:
Barry decides to hire some ladders and planks from a local equipment hiring business to enable him to paint the exterior of his house. When he collects the hired goods, he is asked to sign a hiring agreement. Barry asks the employee of the hiring firm why he has to sign an agreement, to which the employee replies, “It is just for insurance purposes”. Barry does not read the form, but signs it as requested by the employee.
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Whilst Barry is using the equipment, one of the ladders collapses due to the fact that the rope that prevents the ladder from collapsing is badly worn, and Barry is seriously injured.
When Barry recovers and tries to sue the hiring firm, his attention is drawn to a clause on the back of the printed hiring agreement (which he signed when he collected the goods) in the following terms:
“The hirer accepts no responsibility for personal injuries suffered by persons using our equipment during the period of hire, irrespective of whether such injuries are caused by breach of contract, negligence or any other cause whatsoever.”
Barry seeks your advice as to whether he can successfully sue the hiring firm for damages.
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Tutorial Nine – Implied Terms, Capacity, Formalities
The purpose of this tutorial is:
? To understand how the common law and legislation work together
? To learn what types of contracts are covered by the ACL
? To learn what types of warranties are implied by the ACL into these contracts
? To appreciate that specific classes of people are protected if they attempt to enter certain contracts (capacity to contract)
Implied terms
In Tutorial Topic 7 (Contents of Contract), terms were categorised as conditions, warranties, or intermediate terms. When they are stipulated or specified by the parties to the contract they are classified as express terms; but in some cases, they may also appear in the contract without having been expressed or agreed upon, in which case, they are classified as implied terms.
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Exercise 9.1
Read Parker & Box, pp 181-185 and complete the table below:
Topic 7
Express terms specified by…
Topic 9
Implied terms imposed by…
Parties to the contract by negotiation Courts (common law) 3 ways 1. 2. 3. Legislation (Statute) Example? REVISION: Types of express terms? Types of implied terms? 1. 1. 2. 2. 3.
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Exercise 9.2
Common law implied terms (Parker & Box, p 181-185)
1) Each of the following cases provides an example of the court’s willingness to imply a term in the parties’ contract for specific reasons. State the facts of each case, and the reason why the court implied the term.
a) British Crane Hire Corp. Ltd v Ipswich Plant Hire Ltd
b) Hillas v Arcose Ltd; Balmain New Ferry Co. Ltd v Robertson
c) ‘The Moorcock’; BP Refinery Pty Ltd v Hastings Shire Council
2) Was the court willing to imply a term in Codelfa Construction Pty Ltd v State Rail Authority of NSW? Why/why not?
Exercise 9.3
Statutory Implied Terms (Parker & Box, p 185-187; see also Chapter 12)
The Australian Consumer Law is contained in schedule 2 of the Australian Competition and Consumer Act 2010 (Cth). The Act came into effect on January 1, 2011 and implies terms into “consumer contracts” which cannot be avoided.
It replaced similar provisions that were previously contained in the Trade Practices Act 1974 (Cth) and the various Fair Trading Acts of the different States.
This means that the terms implied by the ACL (statutory implied terms) are incorporated into such contracts. An attempt by a business operator to rely on an exclusion clause to exclude or limit liability under any of these statutory implied warranties will not succeed.
1) If there is any conflict between common law and legislation, which prevails and to what extent?
2) What is the definition of a “consumer contract” according section 3 of the Australian Consumer Law?
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Exercise 9.4
(Parker & Box, p 185-187; see also Chapter 12)
As discussed, when a ‘consumer contract’ is entered into, certain warranties are implied into those contracts by the ACL.
1) You attend a petrol station and purchase some petrol from the unleaded petrol pump.
What implied warranties does the ACL provide with regards to the questions below, and in what section would you find each of them:
a) Your right to use the petrol? (good title)
b) The type of petrol sold? (sale by description)
c) The standard or quality of the petrol? (merchantable quality)
d) Whether the petrol will be fit for use in your car? (fitness for purpose)
2) You ask for a special mixture of fuel to operate a particular machine. The attendant gives you one litre of a product to try. You try it and it is satisfactory and you order 1000 litres of it.
a) What type of purchase is this?
b) What warranty is provided by the ACL for this type of purchase and which section refers to this type of purchase?
c) Can a seller avoid the implied warranties contained in the ACL by inserting an exclusion clause in a contract?
Exercise 9.5
Read a summary of the case of Carpet Call Pty Ltd v Chan [1987] ATPR (Digest) 46-025
1) Did the court decide that the contract in this case fell within the definition of consumer?
2) What did the court say with regards to product descriptions in this case?
3) What effect does this case have on business-to-business contracts?
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Exercise 9.6
Capacity to make contracts
The law takes the view that some persons are incapable of fully or properly understanding what entering into a contract means.
Consequently, the law offers some sort of protection to such people if they attempt to enter into a contract. But the law does not offer the same protection to the other person who seeks to enter into this contract with them.
1) In Australia, what is a minor?
2) In general, does a minor possess the capacity to enter into contracts?
3) What are the two exceptions to the rule regarding the capacity of minors? Cite case names as examples of each.
4) If a person makes a loan to a minor and the minor refuses to pay, can the debtor sue for breach of contract? Cite the relevant case from the text in your answer.
Read the cases of Chapple v Cooper, Ryder v Wombwell and Nash v Inman (Parker and Box pages 225-226) and answer the following questions:
1) Explain briefly the ‘station in life’ concept discussed in Chapple v Cooper?
2) Explain the two-step test (applied in the above cases) used to determine whether a minor who has purchased an item that is not a luxury has capacity to contract.
Now answer the problem question below using the IRAC method. Cite case law to support your answer.
John, a 17 year-old student who looks much older, orders $1,500.00 worth of food for an end-of-VCE party.
The food is duly delivered and consumed and John refuses to pay.
Advise the food supplier whether he may sue for breach of contract.
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Tutorial Ten – Mistake, Misrepresentation
The purpose of this tutorial is:
– To understand the fundamentals of the law of mistake and the law of misrepresentation.
– To understand the different remedies available for each of these areas of the law.
– To understand the difference between void and voidable.
– To understand that, in certain circumstances, the law has to choose between applying the rules of mistake and the rules of misrepresentation and that significantly different outcomes result from the choice made.
Read Parker and Box Chapter 14 (Mistake) and 15 (Misrepresentation) and answer the following exercises:
Exercise 10.1
1) In the table below, match the term in the left hand column to the correct definition:
1.Void
A. Can be declared void at the option of the innocent party. Legal outcomes can be achieved until option is exercised.
2. Voidable
B. To put a contract to an end in such a way as to treat it as if it never existed.
3. Rescind
C. Legally non-existent. No legal outcomes possible.
A contract treated as if it never existed
4. Rescission
D. To cancel, revoke or repeal. To treat a contract as if it never existed.
2) List the ways in which a party may lose the right to rescind a contract.
3) Match the term with the correct legal remedy from the table on the following page:
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1. Mistake
A. Contract is declared void ab initio (from the outset).
2. Misrepresentation
B. Contract is voidable at the election of the innocent party (rescission).
4) Are remedies for mistake and misrepresentation ‘common law’ or ‘equitable’ remedies?
Exercise 10.2
(see Parker & Box, pp 233-)
Sometimes when a contract is formed, one of the parties (or even both parties) to the contract may be mistaken about some important aspect of the transaction.
1) Name the 3 different categories of mistake recognised by the courts and explain briefly what each means, citing relevant cases as examples of each.
Exercise 10.3
Read and compare the cases of Cundy v Lindsay and Phillips v Brooks Ltd from Parker and Box (pages 237-240) and answer the following questions. Keep in mind that the real issue for the parties in this type of case is who ends up owning the goods – the original seller or the final buyer.
This is because the only option open to whoever misses out is to chase the rogue and there is usually not much point in that because s/he has disappeared or has none of the money left and no other assets.
1) In both cases, the parties pleaded unilateral mistake. What was the decision of the courts in each case?
2) Why did the court decide the cases, which have similar facts, differently?
3) Why could Cundy retrieve the goods from the ultimate purchaser?
4) What prevented Phillips from retrieving the jewellery from Brooks?
5) What could Phillips have done in order not to lose the right to rescind the contract?
6) What is a ‘bona fide purchaser for value without notice’?
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Misrepresentation
The earlier topics 7 and 9 examined terms of a contract. How is an action for misrepresentation different from an action for breach of contract? Key differences are highlighted in the table below:
Exercise 10.4
1) What are the 3 elements required to establish any of the 3 types of misrepresentation?
2) Name the 3 types of misrepresentation, citing the names of relevant cases to support your answer.
TERMS
MISREPRESENTATION
Nature
? Statements that are promises forming part of contract (whether written or spoken)
? They must be performed by the parties Nature ? Pre-contractual statement: Statement or representation made before contract was finalised (during negotiations). ? Does not form part of the contract and therefore, is not a promise that can be enforced
Form
? May be Express or Implied Form ? Not a term
Non-performance
? If there is a failure to perform a term then the innocent party can sue the other in a legal action for BREACH OF CONTRACT.
? Relevant remedies for breach of contract apply
Falsehood ? If the statement was * an untrue statement of fact (not just opinion), and * was relied upon by the party (representee) to enter the contract, then representee can bring an action for MISREPRESENTATION ? Relevant remedies for misrepresentation apply
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3) What further element is required to prove fraudulent misrepresentation? (Cite the name of the relevant case)
3) What is the exception to the 1st element that was held in Smith v Land and House and Property Corporation (see Parker and Box, pages 251-252)?
4) Is there any other circumstance in which an expression of opinion may constitute a misrepresentation? Cite a relevant case in your answer.
5) In what circumstances does silence constitute a misrepresentation? (see Parker and Box page 253) Cite the name of the relevant case.
6) Read the summary of Attwood v Small and the comments on Redgrave v Hurd (Parker and Box page 254). What do these decisions say with regards to inducement?
7) In addition to the right to rescind, what else may an innocent party claim for fraudulent and negligent misrepresentations?
Exercise 10.5
Read Parker & Box Chapter 15, complete the table and answer the questions that follow:
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Types of Common Law Misrepresentation
Elements
Remedies
1.
2.
3.
1) Name the 3 types of common law misrepresentation, citing the names of relevant cases to support your answer.
2) What are the 3 elements required to establish any of the 3 types of misrepresentation?
3) What further element is required to prove fraudulent misrepresentation? (cite the name of the relevant case)
4) What is the exception to the 1st element that was held in Smith v Land and House and Property Corporation (see Parker and Box, pages 251-252)?
5) Is there any other circumstance in which an expression of opinion may constitute a misrepresentation? Cite a relevant case in your answer.
6) In what circumstances does silence constitute a misrepresentation? (see Parker and Box page 253)
7) Read the summary of Attwood v Small and the comments on Redgrave v Hurd (Parker and Box page 254). What do these decisions say with regards to inducement?
8) In addition to the right to rescind, what else may an innocent party claim for fraudulent and negligent misrepresentations?
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Exercise 10.6
Explain whether the following examples qualify as misrepresentation, and if so, what type. Remember to look for the existence of each element of misrepresentation.
1) You see a car advertised for private sale in the newspaper. You ring up the seller and ask her whether the car has ever been in a serious crash. The seller says that she thinks it has not, but that she is not certain. You do not question this statement. You buy the car. It had been in a serious crash.
2) Same scenario as above, except that the seller says that the car definitely has not been in a crash and you are a used car expert and you thoroughly examine the car before purchasing it.
3) Same scenario as above, except that the seller says that the car definitely has not been in a crash but you don’t believe her.
Exercise 10.7
We shall now revisit the case of Marcel and Yvonne that we looked at in an earlier tutorial, where we looked at the parol evidence rule and collateral contracts.
Answer the following question using the IRAC method, focusing on misrepresentation, rather than breach of contract. In this scenario, if a verbal promise is not a term of a contract an equitable remedy may still be available.
Marcel wants to buy a used car. He knows the make, model and colour of the car he wants to buy. He visits several car dealers who can supply the type of car he wants. In discussions with one dealer, Yvonne, she tells Marcel that if he chooses to buy the car from her, she would fit the car out with high quality new tyres.
Marcel decides to buy the car from Yvonne, but the written agreement he signs with Yvonne makes no mention of this promise. A month after the purchase is completed Marcel is advised by his motor mechanic that the tyres on the car are of inferior quality.
1) Advise Marcel of his legal rights.
2) If Marcel wants to claim damages from Yvonne for her statement about the tyres, what type of misrepresentation does he need to prove her statement was?
3) What does he need to establish to prove the above?
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Tutorial Eleven – Duress, Undue Influence, Unconscionable Conduct
The purpose of this tutorial is:
– To understand that the parties to a contract must have voluntarily entered into the arrangement.
– To see how the common law protects people who suffer from particular disadvantages and who are unfairly taken advantage of when entering into a contract.
Exercise 11.1
1) What are the three types of duress recognised by the courts?
2) What is the effect of a person entering into a contract under duress? What is the result on the contract?
3) In Barton v Armstrong (Parker and Box page 264) what points did the court make about duress to person, with regards to the duress as a motivating factor?
4) Who may make the threat and to whom may it be made under duress to person?
5) In which case did Kerr J make clear that duress to goods was sufficient to set aside a contract?
6) Does the victim of a threat to person or goods need to protest or resist in order to succeed in claiming duress?
7) What is ‘economic duress’?
8 What was the approach that should be taken in determining whether a party is under duress according to McHugh JA in Crescendo Management v Westpac Banking Corporation (Parker and Box page 264)?
Read the summary of Universal Tankships of Monrovia v International Transport Workers Federation and the comments on Smith v William Charlick Ltd from Parker and Box, page 265 and answer the following question:
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9) Give examples of what would constitute ‘illegitimate pressure’ and what would amount to overwhelming, but not illegitimate business pressure.
See also Simply No-Knead (Franchising) Pty Ltd and Allphones (Retail) Pty Ltd v Hoy Mobile Pty Ltd on this point (Parker and Box, pages 275 – 276)
Exercise 11.2
Read Parker and Box, pages 265-270 and answer the following questions, citing case names as examples where possible.
1) Define the term ‘undue influence’.
2) What are the two recognised types of undue influence?
3) What is a ‘special’ or ‘fiduciary’ relationship’? Give some examples.
4) What does ‘presumed’ undue influence mean? Which party bears the onus of proof if there is presumed undue influence?
5) In the absence of a special/fiduciary relationship, which party bears the onus of proving that the undue influence occurred?
Read the summaries and comments on Westmelton (Vic) Pty Ltd v Archer and Shulman and Garcia v National Australia Bank Ltd and answer the following question:
6) What are the factors that the court considers in determining whether a contract should be set aside due to undue influence?
Exercise 11.3
Answer the following problem question using the IRAC method. Remember to state the relevant rules and cite cases where relevant.
Maria is very old and religious. Maria has been ill for some time and believes that she does not have long to live. She decides to move into the Knights Templar Retirement Home and is visited there by Paul, her local priest, who advises Maria on all religious matters.
Paul tells Maria that it is easier for a camel to pass through the “Eye of a Needle” than it is for a rich person to go to heaven (i.e., that it is much easier for a poor person and very unlikely that a wealthy person to go to heaven).
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Immediately after this he asks Maria to donate all her wealth on her death to the Knights Templar Retirement Home. She agrees to do so.
Upon the sad day of her death Maria’s son Raymond finds out what happened and now wants to challenge Maria’s legal transfer of her property to the knights Templar Retirement Home.
Advise Raymond whether the transfer of Maria’s property is likely to be set aside.
Exercise 11.4
Unconscionable conduct (Parker and Box, pages 270-273)
1) In your own words, briefly explain Denning L’s summary of unconscionable conduct.
The leading case on unconscionable conduct in Australia is Commercial Bank of Australia Ltd v Amadio. Read the summary on page 272 of Parker and Box (plus other material if necessary) and answer the following questions:
2) In a few short sentences, briefly explain the facts of this case in your own words.
3) What are the 4 elements that the High Court set out which must be proven to set aside a contract due to unconscionable conduct?
4) What should a party, such as a bank, do to ensure that a contract is not set aside due to unconscionable conduct?
Now answer the following problem question using the IRAC method. You must examine the elements of unconscionable conduct from Amadio’s case in your answer.
Mark wishes to purchase a particular item. He investigates the price being charged for the item and discovers that there has been a recent price rise from $500 to $900. He then happens to visit a shop where the price of the item is $500 and Mark realises that the shop owner is not aware of the recent price increase. Mark buys the item knowing that the retailer has overlooked or has not yet become aware of the price increase.
Does Mark’s behaviour constitute unconscionable conduct?
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Tutorial Twelve – Discharge of Contract, Remedies for Breach
The purpose of this tutorial is to:
– Understand that a contract can be brought to an end by a number of ways.
– Understand the remedies available when one of the parties to the contract breaches a term of the contract and
– Learn that the most usual remedy for breach of contract is damages and that there are rules regarding the calculation of those damages.
Discharge
Exercise 12.1
Read Parker and Box, Chapter 18 (pages 288-299) and answer the following questions.
1) What does discharge of a contract mean?
2) Complete the table below:
Ways in which a contract
may be discharged
Description ( with case reference)
1.
2.
3.
4.
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5.
6.
3) What do the cases of Cutter v Powell, Sumpter v Hedges and Re Moore & Co and Landauer say about ‘partial performance’ of contractual obligations?
4) Explain in your own words the doctrine of ‘substantial performance’. See Hoenig v Isaacs for an example (Parker and Box page 289)
5) Explain in your own words the term ‘quantum meruit’.
6) What are the elements, set out in the case of National Carriers Ltd v Panalpina (Northern) Ltd, which must be proven to discharge a contract due to frustration?
7) What does the decision in the case of Tsakiroglou & Co v Noblee Thorl GmbH (the Suez Canal case) say with regards to the fourth element of frustration?
Remedies
Exercise 12.2
Read Parker and Box, Chapter 19 (pages 300-313) and answer the following questions. Cite cases as examples where relevant.
1) What does the term ‘specific performance’ mean?
2) In what circumstances will the court not award specific performance?
3) What is an injunction? Explain in your own words the two types of injunction.
4) What is meant by the term ‘remoteness of damage’?
5) Read the case summaries of Hadley v Baxendale and Victoria Laundry
(Windsor) Ltd v Newman Industries Ltd and answer the following
questions:
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a) What are the two ‘limbs’ of the Hadley v Baxendale test? Describe each in your own words.
b) What damages did the plaintiffs claim in each case and why were they
unsuccessful?
c) In the Victoria Laundry case, why was the plaintiff unsuccessful in claiming damages for the loss of the Government contract?
d) Define the terms ‘punitive’ and ‘compensatory’ damages.
e) Which type of damages are awarded for breach of contract?
6) Can an injured plaintiff claim interest as damages for breach of contract? (See Hungerfords v Walker, Parker and Box pages 306-307). Explain how this would fall under the Hadley v Baxendale test.
7) What are ‘liquidated damages’? Does the court allow claims for liquidated damages? Explain citing case law as examples if possible.
Exercise 12.3
Answer the following problem questions, applying the relevant remedies for breach of contract using the IRAC method. Cite the names of cases where relevant.
1) Andrea has taken her car to a tyre dealer to have new tyres fitted. When replacing one of the wheels, the dealer’s mechanic failed to adequately tighten the wheel nuts.
Later that day Andrea paid for the new tyres and while she was diving along the road one of the wheels fell off her car causing the car to veer out of control and hit her neighbour’s fence. There was also some structural damage to the wheel assembly of Andrea’s car.
Advise Andrea whether the tyre dealer is liable for these losses.
2) Answer the above question again, but this time assume that the wheel fell off while Andrea was crossing the Westgate Bridge, causing a 30 vehicle pileup, serious injury to other motorists and their passengers and structural damage to the bridge itself, with a total damage bill in excess of $5 million.
Would your conclusion be any different? If so, why?
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Tutorial Program Endnotes
Tutorial One Suggested Answer – Exercise 1.2
ONE possible ‘exam-style’ response to Belinda’s problem (Note: this question could be answered in several different ways. Students are expected to use their OWN words and to present their own understanding and thoughts in addressing any similar question)
As in the case of De Jong v Carpenter, the question is whether or not there is a legally enforceable (or binding) agreement (i.e. a contract) between the two parties. Lora can only force Belinda to complete the purchase (or pay her money for not doing so) if there is a legally enforceable agreement between them.
In De Jong v Carpenter the court said that there was no contract because the parties had not reached agreement on two terms (points) that were material (important) to the contract. In other words, for there to be a contract the parties must have agreed upon the same important points of the agreement.
Belinda had not agreed to the insertion of the clause regarding the odometer reading into the contract because Lora had put it in without Belinda’s knowledge. This was clearly an important (i.e., material) matter because Belinda had clearly specified that she would only buy the car if it had done less than 50,000 kilometres.
This is similar to De Jong v Carpenter where the court held that the insertion of an important clause by one party without the ‘knowledge or permission’ of the other party indicated that there had been no agreement reached between the parties on that point.
In addition, Belinda’s sister had no authorisation from Belinda to agree to any changes or additions to the agreement. Therefore Belinda had not authorised her to agree to the insertion of the guarantee clause involving her parents.
Again, this is a very important matter since it means that Belinda could not complete the purchase without her parents’ involvement in a serious financial commitment. In De Jong v Carpenter, the facts were that the solicitor had no authority from the client to agree to the reduction in time allowed to obtain finance.
In view of this, the court decided that the client could not be said to have agreed to this important change. Similarly, Belinda cannot be said to have agreed to the insertion into the contract of the guarantee clause.
Therefore, Belinda has not agreed to two terms that were material to the contract.
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In De Jong v Carpenter it was held that where there has not been agreement on a number of important terms there is no binding (i.e., legally enforceable) contract between the parties. On that basis, it is clear that because Belinda has not agreed to two important terms in the agreement, there is no binding contract between the parties and, consequently, Belinda is not legally bound to buy the car.
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Exam Preparation
Business Law exam is an open-book exam.
How do you prepare for an open-book exam? Ideally, students should prepare a set of detailed revision notes that include materials from lectures, tutorials and textbooks.
These notes should include:
? Each topic of the law studied in the subject
? Definitions of key concepts
? A brief outline of the key principles/rules of law;
? Relevant cases (include key facts, decision and reasoning);
? Past exam questions on each topic;
? Possible answers to these questions prepared by you under exam conditions.
During the exam:
? Read the questions carefully;
? Make sure you understand what the questions are requiring you to do;
? Check all marks allotted to each question and allocate your time accordingly;
? Attempt to identify the issues in the questions;
? If you run out of time on a question, map out a plan of the answer.
Note: Footnotes are not required for the final exam. The VU plagiarism policy still applies, nonetheless. Students must attempt to answer questions in their own words. Answers that are substantially copied from other sources will incur penalties, including marks deduction for each instance or for more serious offending, failure of the exam and/r unit.
Selected past exam problem questions can be located in Parker and Box, pages 348-356 and via http://www.vu.edu.au/library/access-borrowing/search-browse-resources/ereserve-past-exams
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Sample Exam Short-Answer Questions
1. Summarise briefly the presumptions applied by courts in deciding whether or not parties to an agreement intend legal obligations to flow from their arrangements.
(2 marks)
2. What is the consequence of a decision by a judge hearing a contract dispute that one of the significant terms of the contract is expressed in such a way that the judge cannot determine the true meaning of the term?
(2 marks)
3. Explain briefly the legal rule known as the “Parol Evidence Rule”. What is the logical justification for this rule?
(2 marks)
4. Terms of a contract may be classified as conditions, warranties or intermediate (sometimes called “innominate”) terms. What is the relevance of the distinction between these various classifications of terms?
(2 marks)
5. A person under the legal age of majority is said to be a “minor”. In what circumstances (if any) may a minor enter into a valid and legally enforceable contract?
(2 marks)
(5 x 2 marks = 10 marks)
Students should attempt to answer all parts of this question. Given that each part of the question attracts only 2 marks, only brief answers are required. For full marks, students are required to cite the names of cases where relevant for each question.
Students should answer all questions in their own words. The VU plagiarism policy applies to exam questions. Footnotes are not required.