Commercial Law Use: The IRAC Method - Case Study Example

Commercial Law Issue The case involving Hamid and his contract with Speed Connect raises one major legal issue. This issue relates to whether the contract is valid or enforceable. Considering the fact that Hamid was not able to understand some of the key terms and conditions of the contract, should he be bound by the $1500 penalty for terminating his contract before the 2years elapse? Moreover, what grounds can be applied to render this contract void? Rule The validity of a contract is often determined by four key elements namely; intention to create legal relations, offer and acceptance, consideration and capacity1. The contract between Hamid and Speed Connect embodies these key elements of a valid contract. Firstly, there was intention to create legal relation. This is evident based on the fact that Hamid and Kathy were relating in a commercial or business context2. Hamid had the intention of getting internet connection in order to Skype his family in Afghanistan and do a free-online English course. Thus when he agreed to take up the offer by Kathy who was selling internet access contracts, it is apparent that there was clear intention to create legal relation. Secondly, there was an offer and acceptance3. If an agreement is to be legally enforceable one party must accept an offer made by another4. In this case, Kathy offered to sell Hamid internet contract and he accepted by subscribing to the internet services offered by Speed Connect for three months. Thirdly, consideration is crucial to the validity of any contract5. The element of consideration is evident in the agreement made between Hamid and Speed Connect. In essence, the agreement was based on an exchange of promises where each received value and had a certain obligation6. The basis of the agreement is that in payment of monthly subscription fee, Hamid would receive internet connection and a tablet. This shows that consideration exists in this agreement. Another critical element that proves the validity of a contract is the capacity of the parties involved to enter into legal relations. The law limits and prohibits a certain group of people from entering into contracts. Such groups include, minors (persons below the age of 18 years)7, persons with mental illness or intellectual disability8, imprisoned persons, corporations9 and bankrupt persons.10 It is evident that these exceptions are not applicable in the case of Hamid’s agreement with Speed Connect. However, there are other factors applicable to this case that can render a contract void or invalid. For instance, the issue of misrepresentation either fraudulent or negligent can come into play in this case and can render the contract void11. Misrepresentation is a concept within the realm of contract law that touches on false statements made by one party to compel the other party to enter into the contract.12 For example, false information made by a marketer or agent regarding the nature of a particular product or service can be considered as misrepresentation13. Misrepresentation can be either be through word or conduct14. It can also be categorised as either fraudulent, innocent or negligent misrepresentation. Fraudulent misrepresentation is an intentional act by one party to deceive the other by providing false statements or information in order to induce a contract. A contract that is formed due to fraudulent misrepresentation is deemed as voidable. In a case where fraudulent misrepresentation is proved, the plaintiff is entitled to a remedy. In order to prove fraudulent misrepresentation the plaintiff must show that there was false statement of fact, the representation was untrue, the representor knew the statement was false and as a result the plaintiff suffered loss15. An innocent misrepresentation is an unintentional act of misstatements or providing wrong information without the intention to mislead. It occurs when one party unknowingly misstates facts about the terms or conditions in a contract. There is no remedy for innocent misrepresentation but the contract rendered null and void16. In order to prove that there was innocent misrepresentation the plaintiff must prove that there was false statement of fact, the representation was untrue and the representor had no knowledge that the statement made was false at the time he/she was making the statement17. On the other hand, negligent misrepresentation occurs when an innocent but negligent misrepresentation is made by one part that compels the other party to enter into a contract18. In order for Hamid to prove that negligent misrepresentation occurred, he must show that there was false statement of fact, the representation was untrue and the representor negligently or recklessly made the false statements or representations. The concept of unconscionable conduct also comes into play in this case. Unconscionable conduct touches on transactions between dominant and weaker parties19. When one party takes advantage of a 'special disability' of the other party such as illiteracy or language of barrier and the resulting transaction is oppressive and harsh towards the weaker party an unconscionable conduct can be established20.21 In Commercial Bank of Australia v Amadio, Justices Deane JJ, Mason and Wilson held that “ relief on the ground of "unconscionable conduct" is established in a case in which party makes unconscientious use of his bargaining power or superior position to the detriment of a party who suffers from some special disability or is placed in some special position disadvantage22“. In this case it is evident that Kathy had more bargaining power than Hamid which she used to disadvantage him by inducing him to sign a contract whose terms he did not understand. Application A critical look at the case between Hamid and Speed Connect Limited, it is evident that at face value, the contract between Hamid and Speed Connect embodies the key elements of a valid contract. The contract meets conditions such as intentions to create legal relations, consideration, capacity and offer and acceptance. However, using grounds such as misrepresentation and unconscionable conduct Hamid can be able to prove that the contract is void and as a result he can get out of the contract. On the issue of misrepresentation, it is possible for Hamid to prove that either fraudulent or negligent misrepresentation occurred. Given that Kathy was aware that Hamid speaks very little English and she instead used some technical language to explain the terms of the contract without soliciting the help of a telephone translation service, it may be possible to prove negligent or fraudulent misrepresentation. In this case, fraudulent misrepresentation can be proved by showing that Kathy had the intention to deceive Hamid to enter into the contract since she knew Hamid did not understand English well yet she still used technical terms. Negligent misrepresentation can be proved by showing Kathy negligently or recklessly made false representations that compelled him to enter into the contract without being fully informed about the hidden costs and termination penalty. Moreover, the fact that Kathy did not use a telephone translation service in order to help Hamid understand the terms of the contract shows negligence on her part. Although it may be possible to prove that Kathy had the intention to deceive and that she acted negligently, in order for the court to establish that fraudulent or negligent misrepresentation occurred, it is key to prove that false statements were made. Given that Hamid did not fully understand what was being said, it may be difficult to prove that Kathy made false statements. The fact that it is difficult to prove Kathy made false statement can be used as a defense. However, the concept of unconscionable conduct provides a strong ground for proving that the contract was invalid. As evident in Commercial Bank of Australia v Amadio23, it is possible to prove that Kathy took advantage of Hamid’s language barrier to induce him into signing a contract whose terms he did not understand in the first place. Conclusion The contract between Hamid and Speed Connect embodies the key elements of a valid contract. It meets conditions such as intentions to create legal relations, consideration, capacity and offer and acceptance. Nevertheless, on grounds of fraudulent and negligent misrepresentation Hamid can be able to prove that his contract with Speed Connect is invalid. Nonetheless, it may be difficult to prove that false statements were made since Hamid did not understand what was being said. However, the concept of unconscionable provides a more strong ground for proving that contract is void. Drawing on this concept, it is possible to show that Kathy took advantage of Hamid’s language barrier to induce him into the contract. References Australian Contract Law (ACL),Commercial Bank of Australia v Amadio (2013), Bankruptcy Act 1966 (Cth) Blomley v Ryan (1956) 99 CLR 362 Brogden v Metropolitan Railway (1877) 2 App. Cas. 666 Carter John, Carter’s Guide to Australian Contract Law, (Butterworth, Sydney, 2011) Chappell & Co Ltd v Nestle Co Ltd [1990] AC 87 Commercial Bank of Australia v Amadio(1983) 151 CLR 447; [1983] HCA 14 Corporations Act 2001(Cth) Edwards v Skyways [1964] 1 WLR 349 Gibson Andy & Fraser Douglas, Business Law 2014, (Pearson Higher Education, Sydney, 2014) Gillies Peter. Business Law, (Federation Press, Annandale, NSW, 2004) Gordon v Selico (1986) 18 H.L.R. 219 Hart v O'Connor [1985] UKPC 1 Minors (Property and Contracts) Act 1970 (NSW). Misrepresentation Act 1972 Latimer Paul, Australian Business Law, (CCH Australia Ltd, Canberra, 2012) Paterson Jeannie, Robertson Andrew & Duke Arlen, Principles of Contract Law, (Thomson Reuters, Pyrmont, NSW, 2012). Redgrave v Hurd (1881) 20 Ch D 1 Uher Thomas & Davenport Philip, Fundamental of Building Contract Management, (UNSW Press, Sydney, 2009) Read More