Contract Law Questions - Essay Example

Contract Law Questions Privity of Contract: Ans The Doctrine of privity of Contract is based upon the original laissez faire principles that underlies contractual theory and prevents a third party from seeking relief for damages under a Contract unless he/she is a party to the original contract. However, the principle of equitable estoppel prevents a person from adopting in Court a position that is contrary to an original position that may have been relied upon by another party. In the case of Grundt v Great Boulder Proprietary Gold Mines Ltd,1 Dixon J clarified that the protection that was sought to be given by the doctrine of equitable estoppel was concerned with the detriment that would occur through an alteration in the original promise of one party to another. Moreover, the purpose of equitable estoppel is to prevent an unconscionable exercise of rights by one party to bring about significant detriment to another party2. Therefore, for example, if a third party such as a consumer has suffered significant detriment as a result of the reliance on a promise made by a manufacturer, relief may be accorded by the Court on grounds of equity and prevention of unconscionable transactions. Equity will determine relief rather than formal contractual provisions and this position has taken precedence in several cases - equity has been acknowledged as a right that will provide relief for a party who has been wrong by the unconscionable exercise of a legal contractual party.3 This could be the basis that can be successfully used to circumvent the doctrine of privity in contract. Ans 2: There are certain separate contractual requirements that have been laid out for minors because the law classes them in the group of people who are mentally incapacitated and therefore incapable of entering into a binding contract with anyone. A minor may enter into contracts only for necessities such as food, clothing and other supplies, which do not include luxury supplies4. In the case of such items as well, a minor is not obligated to pay the full contractual price but may pay a lower price, which is reasonable.5 Therefore, applying this to Toby’s case, the catering of food items for a party cannot be strictly categorized under necessities and since Toby, as a minor, is considered by law to be mentally incapable of entering into a contract or of understanding the legal ramifications that accrue form contractual obligations, his claim that he does not have to pay is likely to hold good under the law. The catering Company is unlikely to succeed in a claim against Toby since it was their responsibility to ensure that a responsible adult would pay for the provisions before the party was catered. Since Toby has signed the contract and is a minor, no relief is possible under the law. However, although the law strictly denies relief, there is nevertheless the issue of equity that arises in this case, since Seersha has suffered detriment through her expenses incurred in catering the party on the basis of a promise to pay. She also has the oral promise of both Billy and Mary who have agreed to make the payment for the food that was catered by Seersha’s company. Therefore equitable estoppel may work in Seersha’s favor in this case in order to secure the payment that is due to her. In the case of Hughes v Metropolitan Railway6 three specific requirements were established to claim equitable estoppel: (a) the existence of a clear legal promise - In this case, there was a clear promise to pay for the catering services that were being provided, both by Toby in Writing and Billy and Mary orally (b) reliance on the promise – In this case, Seersha has relied upon the promise to pay and has supplied the goods and (c) an inequitable nature to the transaction – when going back upon the promise would be inequitable to one of the parties, equitable estoppel may be invoked In this case, it may be clearly seen that going back on the contract will produce an inequitable result for Seersha who will incur severe losses, while on the other hand , the gains that will accrue to Toby, Mary and Billy out of having had the luxury of catering for eighty something guests without paying for it produces an unconscionable result. Moreover, Seersha can also demonstrate her reliance upon the promise made by Billy and Mary. The provisions of offer and acceptance of contract will hold good in this case because Seersha has offered her services for which both Billy and Mary have agreed to pay, and the service has already been provided. Therefore it would be unconscionable if the consideration is not paid. The intent of Billy, Mary and Toby to avail of the service cannot be contested because if they did not intend to pay for the service, they should not have received it and agreed to pay for it in the presence of other people who would be able to witness to the fact. Therefore on grounds of equitable estoppel, Seersha can certainly approach the courts to get paid for the service she has provided. Ans 3: Katy’s contract with Martin is outlined in the invoice that was supplied with the mail that outlined his order. In this case, it must be noted that there is an exclusion clause that is included in the invoice that specifically states that the “carrier” – namely Triton Glassware, is not responsible for damages that occur while the goods are in the possession of the “contractor” – or the company hired to convey the goods to the customers. This exclusion contract will specifically indemnify Katy and Triton Glassware and render them not liable for the losses that have been caused to Martin. The Sale of Goods Act states that if an exclusion clause is to be deemed to be invalid for any reason, it will be because it is unreasonable in its terms and conditions.7 A contract that is deemed to be unfair due to the inclusion of an unreasonable exclusion clause will not be binding upon a customer.8 However, the question that arises in this instance is – can the exclusion clause be deemed to be unreasonable? There are several vitiating factors working in Katy’s favor (a) it is the busy season, so she is entitled to hire additional sub contractors to carry out her deliveries (b) Express Couriers offered Katy a competitive rate and she is entitled to avail of such competitive advantages for the benefit of her business (c) there is nothing wrong with the quality of the product that was supplied and (d) Triton Glassware did not deliberately or fraudulently cause the damage. The exclusion clause cannot be deemed to be unreasonable, since Katy is not in a position to control the performance of the sub contractors who offer her their services only on a temporary basis. The validity of exclusion clauses have been upheld by the Courts in the case of dealings between businesses9, and while the Unfair Contract terms Act of 1977 is geared towards protecting the rights of the consumers, it may be noted that the breakage of glasses has not resulted from any omission on the part of Katy or Triton Glassware, an event which could have made the entire transaction unconscionable and strengthened Martin’s case.10 In view of the above, there is some restriction on the extent of recoveries that Martin may expect because the defendant – Triton Glassware - can prove that it did not deliberately or fraudulently cause the loss, therefore the extent of recoveries may be limited to that which the Court considers it just and equitable for Triton Glassware to pay, especially in view of the vitiating factors that exist and the absence of any intention towards deception. Martin could also consider filing a claim against Express Couriers for the damage of the goods that was to have been supplied to him, especially since they are expensive glasses. Martin may be able to recover damages up to the extent that has been insured for on the payment invoice that Triton Glassware has executed with Express Couriers. The courier company has made a promise to Triton Glassware to deliver the glass and this promise has also been relied upon by Martin, although he is a third party to the contract between Triton and Express Couriers. Since the fragile nature of the goods is bound to have been indicated by Triton on the package, Express Couriers will be obliged to make good the damages, at least to the extent insured for. Ans 4: Section 52 of the Trade Practices Act of 1974 is meant to impute strict liability for any form of misrepresentation or fraudulent nature in a transaction and this requirement of strict liability has been framed with the intent of protecting consumers. Therefore in applying Section 52, the factor that would be most important would be whether there was an intent to mislead the consumer and liability will be imputed even if an exclusion clause is present, when it can be established that there was an intent to mislead. Section 52 will be precluded only if it can be proved that a representation that has been made by a seller is such that it can be supported by evidence of a reasonable basis for such a representation. 11 Thus, an exclusion clause may be relevant in limiting liability if it can be firmly established that there were reasonable grounds for the inclusion of such a clause and that the intent behind inclusion of the clause was not to mislead or defraud a customer. But, as stated by Lee J in the case of Wheeler Grace & Pierucci Pty Ltd v Wright12 it may be possible to invoke the strict liability of Section 52 even when there was reasonable cause to believe the promise would be fulfilled, if the conduct of a seller is in any way misleading, deceptive or fraudulent and in such a case, it will not even be necessary to establish the intent to deceive. Therefore, on an overall basis, an exclusion clause will not exclude liability in the case of misrepresentation or misleading conduct. Ans 5: In common law, damages were available to a Plaintiff only if misrepresentation in contract was fraudulent.13 It was first necessary for a claimant to establish that the contract has perpetrated a fraud in order to be eligible to seek damages. The case of Hedley Bryne 14that followed expanded the scope of the common law to some degree in also allowing for damages and economic losses that are caused even without the existence of a formal contract, when a special relationship exists that imputes a duty of care such as in the case of a professional provider of services. After the principle set out in Hedley was established, subsequent cases of misrepresentation in contracts have imputed liability for negligence and misstatements.15 However, Section 52 of the Trade Practices Act of 1974 has expanded the scope of misrepresentation under common law even further, in allowing relief to third parties by imputing strict liability even in cases where exclusion clauses may exist. When there is any indication of misleading conduct on the part of a party to a contract, then such conduct does not necessarily have to be provided to be fraudulent nor does it have to impute a duty of care. It is sufficient to establish that the conduct of the party was deceptive or misleading and there is no need to prove that there was any corresponding intention to mislead or deceive a customer. In this way, Section 52, has expanded the scope of protection available to a consumer who is considered to be in an inferior bargaining position as compared to the producers or sellers of goods. Ans 6: Callum will have a good case in contract against the real estate agent Dave. Under the law of contract, misrepresentations in contract can be strong grounds to have a contract voided or to seek damages. Dave has provided Callum misleading information that the cinema took in $1,000,000 profit every year and that it has an exclusive distribution license for blockbuster films. Both of these pieces of information based upon which Callum has made his decision to purchase the cinema are both blatantly false since (a) the cinema made nothing like $1,000,000 in profit (b) the exclusive distribution license was given to a cinema in a neighbouring town. This is therefore a clear case of misrepresentation and Dave will be liable under Section 52 of the Trade Practices Act for providing misleading information to Callum, which has influence his decision to buy and caused him losses. In fact as Lee J stated clearly, “…..the assessment of misleading or deceptive conduct is an objective test not dependent upon the proof of an intent to mislead or deceive on the part of the corporation….”,16 therefore even in Dave believed at the time of making those claims that they were true, this will not serve as a basis to exonerate him, since the factual information shows that the cinema was not making such profits as he claimed it was. While the principle of caveat emptor or buyer beware will be relevant in this case, the fact that the information provided by Dave was misleading can be established and he would be guilty of misrepresentation and liable. In the case of the solicitor however, the case against him is not so clear. It must be noted that while there is a duty of care imputed upon him by virtue of the nature of his relationship with Callum17, nevertheless he has conducted enquiries and they have turned up negative. Therefore it could be argued that he has fulfilled his duty by checking up on the allegations of cyanide poisoning and has not been guilty of negligence in the matter. Furthermore, the principle of caveat emptor would be relevant because Callum is making a big purchase and should have taken the trouble to check things out carefully before actually putting down his money. The solicitor has been hired by Callum primarily for the purpose of drafting the lease and has fulfilled his duty by running searches with the City Council. It was up to Callum to pursue the matter further with those friends at the pub about the cyanide poisoning and to exercise his option not to buy the property. It is unlikely that the solicitor will be held to have either seriously violated his professional duty or to have provided any misleading information to Callum. Neither can his conduct be construed to be misleading since he did go to the trouble of looking into Callum’s concerns. Therefore, while Callum may have a god remedy in contract against Dave, the same may not be the case with the solicitor. Ans 7: Melinda’s trade practices would definitely be construed as misleading conduct under the Trade Practices Act of 1974 and it is likely that both Joanna and Carmen may have rights under this Act to recover damages from Melinda for her misleading conduct. In the case of Joanna, she has been made to purchase a bag for a price that is based upon the assumption that it is a genuine one, however the fact that the same bags are available at the flea market for a throwaway price would indicate that Melinda has fraudulently charged her more for the bag than what it is actually worth. Similarly in the case of Carmen, she will have a direct cause of action to bring a suit against Melinda, since she has been lured into purchasing the product on the basis of the notice that says “Genuine designer bags” which is a n outright falsehood because the bags are not genuine at all. Therefore both Joanna and Carmen can sue Melinda for damages. Under Section 82 of the Trade Practices Act, the extent of damages payable by a merchandiser may be limited if they did not deliberately or fraudulently cause the damage in question. However in Melinda’s case, the facts of the case are that she knew perfectly well that what she was selling in her store and at the flea market were not in fact genuine designer handbags, but were cheap imitations. Yet in spite of her knowledge she attempted to pass them off as genuine and charge her customer the higher prices that are normally due for such bags. Therefore the contract for sale that she has entered into with both Carmen and Joanna is an unfair and misleading contract and may invoke the provisions of the Unfair Contract terms Act of 1977. The UCTA generally provides more scope for an ordinary customer to contest a contract as being unfair, since an ordinary customer will be deemed to be in an inferior bargaining position as compared to the supplier, who will also be deemed to possess greater knowledge and therefore redress will be offered to compensate for the unequal bargaining position.18 In the event that Melinda did not know the bags were counterfeit and then sold the bags at a higher price, as she did to Joanne, then it is possible that her damages may be limited since the transaction was not deliberately fraudulent and the vitiating factor that could be considered in that case would be her lack of knowledge. Similarly, her label at the flea market would also not be deliberately misleading and fraudulent. However, since she deliberately engage din misleading conduct, she will be liable to pay Joanna the damages in terms of restoring the extra price she has collected plus damages and in the case of Carmen, she may be required to reimburse the purchase and also pay damages for misleading conduct under the strict liability provisions f Section 52 of the Trade Practices Act. Ans 8: It may be possible for Jacob to claim that he was mistaken, since the property he thought he was buying was not the property in question at all. In the case of Bell v Lever Brothers,18a Lord Atkin clarified that a contract could be voided for mistake when the contracted item was essentially different than what it was thought to be. Since a lot containing 1000 acres of scrubby bush land was not what Jacob intended to buy in the first place, the contract can be voided. Since Stefano does not own Lot A at all, it is impossible for him to enter into any transaction regarding its sale and therefore the entire transaction he entered into with Jacob would be void on the grounds of common mistake or initial impossibility, since it will be impossible to actually perform the contract for the sale of the property. The test of impossibility laid down by Lord Philips in the case of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd18b – does the mistake render the performance of the contract impossible? – will apply in this case, since the sale cannot be effected because the seller does not own the property he is selling. However, the contract may be voided on the grounds of common mistake only if the parties themselves (Jacob and Stefano) have not specified any clauses within their contract stating what will happen if either one is unable to perform the contract for any reason. For example, in the case of McRae v Commonwealth Disposals Commission19 the Commission could not void the contract on grounds of mistake, since the mistake in question had been induced by the Commission itself. However in this case, if Stefano himself was unaware of the subdivision which had taken place, then the grounds of common mistake would be relevant and applicable in this case to void the contract. Jacob would be entitled to receive back the payment of $90,000 that he has invested on the property and may also be eligible for recovery of the funds that he has invested into the repairs for the house after the sale, since the entire sale can be voided as a mistake. However, it is likely that expenses incurred before that may not be recoverable. The solicitors however will not be able to avoid responsibility for this gaffe. As advocates, it is their duty to examine the Title Deeds and other legal documents pertaining to the property that is being conveyanced and it will be viewed as negligence by the Courts in their duty, since they have not found out about the division, as the solicitor in Queensland did and will therefore be held liable by the Courts. The defining case in this context is that of Hedley Byrne20 where the issue under consideration was the losses that Plaintiff incurred due to the defendant solicitor’s negligent giving of advice. In a similar manner, in the case of Lloyds Bank v Bundy21 the bank was held liable for negligent giving of advice. The solicitors being in the position of professionals have a duty of care to their clients and their failure to investigate could constitute negligence and make them liable under the law. Ans 9: Katie can seek remedy in contractual law under Section 74 of the Trade Practices Act of 1974 (Cth) which relates to warranties provided on services, of which land evaluation could be classed as one. Section 74 (1) states: “In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied.” On the basis of the above, there is an implied warranty on services that are offered by a firm, particularly professional ones such as a valuation service, where a customer relies upon the skill of the service provider. If Quentin is working on his own as a land valuer, then it is unlikely that Katie can see any recoveries, since the implied warranty on services may not arise in the case of an individual valuer who is working on his own. However, if Quentin is working as a part of a firm, such warranties will be implied, although Section 68A of the Trade Practices Act permits a corporation to limit its liabilities in the provision of services. If damages are caused by wrong valuation of a property, such as in Katie’s case where the changes are now irreversible, the only appropriate remedy would be to allow for damages for Katie. Therefore, Katie would have a remedy in contract on the basis of the due care and skill with which the services are to be rendered, so that a failure in the duty of care could become actionable for such violation. Katie may also be eligible for relief under the Consumer Transactions Act on the same basis that the due levels of skill and care were not exercised in the valuation of her land, thereby causing her very heavy losses. However, the fact that Katie is eligible for relief does not necessarily mean that she will be able to secure any substantial relief. She has incurred losses to the tune of $800,000. In the event that Quentin’s firm is insolvent or if they are not in a position to be able to pay out those kinds of damages, then it is unlikely that they will be able to make good the damage, even if the Courts decree that the firm is liable due to Quentin’s dereliction in the standards of skill and care that were due from him. In fact, the existing laws function as deterrents to valuers since they are aware that they will be held liable for losses occurring through mis valuation, therefore Quentin will be guilty. However, while Katie has a remedy in contract to seek damages, the question of whether she will actually receive them will depend upon the financial status of Quentin’s company. If the Company has some kind of professional indemnity insurance then it may be able to compensate Katie for her losses and act in accordance with the orders of the Court in award of damages, however in view of the large value of the losses, there is an issue of doubt about whether Katie will be able to collect. Ans 10: This is a case that invokes the principle of offer and acceptance in contract. It may be noted that the CEO has sent a note announcing the offer of the new variety of sausages if a certain sales target was achieved. This could be construed as an offer which Lynette has accepted by selling the requisite number of sausages and by placing the board above her shop with the notification about the new sausages. However, there has been no further communication with her and the CEO of Butchers about her acceptance of the conditions specified in the note, neither has Lynette sent any communication to the CEO about the strategies that she is employing in order to ensure that she meets the target of sausage sales that is required. Therefore, the question that arises in this case is – was there a contract existing on the sales targets and the offer of sweet and sour sausages? In the case of Gibson v Manchester City Council 22 Lord Denning was of the view that the Court should look at the correspondence between the parties in order to determine whether they had reached an agreement on a particular issue. Moreover, in the case of G. Percy Trentham Ltd v Archital Luxfer23 Lord Steyn was of the view that in determining whether an agreement existed between two parties, the Courts should take into consideration the fact that English law approach to contract formation is such that it would be measured by the yardstick of the reasonable expectations of sensible businessmen. Applying these aspects to Lynette’s case, it may be noted that Butchers has a valid reason for not going ahead with their offer to produce the sweet and sour sausages. The fact that the market research appears to indicate that it will not be popular is not an unreasonable reason to decide against the production of a particular product. From the CEO’s angle, it may be noted that there was no feedback from Lynette about the success that she is having at her store and about the fact that she has already put up a poster announcing the sweet and sour sausages and it has produced excellent results. From the point of view of contract formation, the CEO has made an offer but Lynette has not in any way, indicated her acceptance of the contractual terms nor written any letter to Butchers in the there month period between January and April stating that she is promoting the product. Neither has she told them about the surge in sales on advertising the sweet and sour product, which could have formed the basis of a revision of the CEO report on the marketing aspects of the sweet and sour sausages. Based on the information available to them, the CEO has made a decision, and it is unlikely that Lynette can contest it. Possibly, Lynnette may be able to reach some arrangement with Butchers and claim some damages against any claims of deceptive advertising that may be leveled against her. However, contract law also allows a party to a contract to change their mind if the contract has not yet been finalized so the CEO has the right to withdraw the first offer, just as Lynette has the right to change her mind about the offer of sweet and sour sausages, since she has not made the purchase of the regular sausages a condition for sampling the new variety. Therefore, there’s not much Lynette can do in this situation. Ans 11: Roger can contest this charge of $175. There are some factors rising in his favor. Firstly, the arrangement between Roger and Clive has been noted down in written form in an agreement. The agreement throughout refers to Clive’s “ride-on”. It is possible that Clive may be able to contest Roger’s refusal to pay the $175, on the basis that the agreement does not specify exactly which ride on is to be used. However, there are two aspects that may belie this argument. Firstly, Roger is a lawyer himself, therefore he knows the value of the oral agreement, as well as the written agreement. He has made it very clear to Clive that only the new one is to be used and Clive has assured him that he will only use the new one. Therefore in addition to the written agreement between them, there is also an oral agreement between the parties. There is also a history to this transaction which can be called upon by Roger. For all the previous eleven occasions that Clive has mowed Roger’s lawn, he has used the new machine and Roger has paid for only three hours of work. Therefore unless there is some compelling reason, Roger cannot be suddenly expected to pay more for the very same service for which he has already been paying a certain rate. Moreover, it is likely that the results may also be less satisfactory since Clive has used the old lawn mower in spite of Roger having expressly requested that only the new machine be used. To expect Roger to pay more for less satisfactory service is not an adequate justification that Clive can use to enforce his side of the contract. When a contract has already been agreed upon by the two parties based upon certain terms and conditions, then any change to those terms and conditions cannot be executed without the express written or oral agreement of both the parties. Roger in this case has not agreed to a change in the terms and conditions and can therefore contest it. In fact, Roger can actually claim damages from Clive if any kind of damage has been caused to his grass and if this has also been written into the contract. Since he has clearly specified the use of the new machine, Clive has used the old machine at his own risk and cannot expect Roger to pay extra for the service, when he has violated the terms of the agreement between them. In the case of disputes on agreement about price, the case of May and Butcher v R 24 held that only when there was an agreement about price, any disputes arising out of it could be submitted for arbitration. Therefore, if Clive and Roger are unable to come to an agreement on price, this could be one option that will be open to them. However, in view of the conditions under which this agreement was reached, it appears unlikely that Clive will have any recourse to get $175 from Roger, he may have to be content with the normal price he is usually paid for three hours of work. Read More