Australian Business Law Issues - Assignment Example

Problem Based Assignment Ronald approached Auto Angels with the intention of purchasing a BMW. Barry, a sales person, promised Ronald a superior car stereo player, if he purchased the car. The price of the car was quoted as $34,000. Ronald signed the contract and took delivery of the vehicle. Barry asked Ronald to return after a week to get the stereo installed. The terms and conditions of this sale contract had been displayed in a separate document that Barry had not shown Ronald. One of these terms stated that Auto Angels would not accept responsibility for the vehicles that it sold. Ronald, found upon returning after a week to have the stereo installed that that Barry had left Auto Angels. Wendy, the firm’s owner expressed ignorance regarding this promise and refused to install the stereo. Subsequently, the car broke down and it came to light that it had been in an accident and had not been maintained properly. Barry lied to Ronald that the vehicle had been maintained very well. Repairs to the car would come to $3,000. It is required to advice Ronald, whether he can legally claim return of the amount paid towards the cost of the car, and whether he can claim compensation. The following discussion has been undertaken, in order to advice Ronald about his remedies for the losses suffered by him, with respect to the purchase of the car. Written or oral terms are integral to contracts. Conditions denote terms of greater importance and warranties those of lesser importance. As such, conditions are essential for contract formation. Therefore, breach of a condition or making of a condition falsely entitles the aggrieved party to regard the contract as rescinded, void or voidable.1 A warranty limits the wronged party to seeking monetary damages for its loss, with the continuation of the contract’s binding effect upon the parties. An exemption or exclusion clause could exclude the responsibility of a party to perform the contract. The remedies for breach of contract are; self-help, damages, specific performance and rescission. 2 From a very broad perspective, a condition is merely a contractual term, whereas, a warranty is a promise in the contract. In Lloyd’s Ships Holdings Pty Ltd v. Davros Pty Ltd,3 it was held that the use of the term condition in the contract indicated intention to grant the status of a condition upon that term. However, the contract had to explicitly state that breach of a specific condition would permit repudiation by the wronged party. 4 In Bettini v. Gye,5 the court held that a specific stipulation had to be examined, in order to determine whether its breach would significantly alter the nature of the contract. 6 In our problem, Ronald’s purchase of the car from Auto Angels was due to the promise of Barry to provide the music system. However, it was not indicated that failure do so would rescind the contract. Therefore, the installation of the music system constitutes a warranty and not a condition. Consequently, Ronald can claim damages for failure to install the music system in the car. He cannot repudiate the contract, for failure to install a music system. However, it is necessary to determine whether a misrepresentation made by a party to the other party, which has a bearing upon some aspect of the contract between them, has legal outcomes. When the subject matter of the misrepresentation is a contractual term the aggrieved party can initiate action for breach of contract. Nevertheless, every statement made, prior to the formation of a contract, does not become a contractual term. In general, a statement becomes a contractual term, if so intended by the parties. Thus, the aggrieved party cannot bring an action for breach of contract, with regard to a false representation that is not a contractual term. 7 Ronald formed the contract believing Barry’s representation that the car had been well maintained. This statement could be assumed to be a condition of the contract. Misrepresentation has to be of relevant or operative kind, if remedy for misrepresentation is to be granted. Such misrepresentation is a false statement that is intended to induce a person to form a contract. In addition, it has to be material, inasmuch as it serves to wholly induce that person to form the contract. It could also contribute towards the formation of the contract, in conjunction with other factors. 8 Misrepresentations are innocent or fraudulent. The first category relates to statements that were made with belief in the veracity of the statement. Fraudulent misrepresentation denotes statements made without belief in their truth. Thus, fraudulent statements are made with knowledge regarding their falsity or in a reckless manner. Moreover, the contemporary developments in the tort of negligence have made it pertinent to determine whether there had been negligence while making of an innocent misrepresentation. The party to whom a fraudulent misrepresentation has been made is entitled at common law, to rescind the contract. The court may uphold or nullify such rescission. In the absence of the possibility of making restitution or restoring the parties to their position before the contract, a party is precluded from legally rescinding the contract. 9 Therefore, the law does not permit or approve of the rescinding of a contract, unless it is possible to effect precise restitution. However, equity tends to be more liberal, and it permits rescission if it is possible to achieve substantial restoration, of the parties to the contract, to their position before the contract. This was illustrated in the ruling in Alati v. Kruger.10 A party cannot rely upon an exemption clause, when it induces the other party to form the contract by misrepresenting the connotation and outcome of the exemption clause. In Curtis v. Chemical Cleaning and Dyeing Co,11 the defendant company attempted to rely on an exemption clause that exempted liability for any damage, whatsoever. This had been misrepresented to the plaintiff as relating to the exclusion of liability for specific risks, namely damage to beads and sequins on the wedding dress. The Court of Appeal ruled that the defendants could not invoke the exemption clause for the staining of the garment, during cleaning. 12 In Crawford v. Parish,13 a franchisor of burglar alarms had misrepresented to the purchasers that there were no competitors in the market for this product. The court held that the purchasers were within their rights to rescind the contract. As the misrepresentation had induced the purchasers to form the contract, they were awarded damages.14 In Vettese v. Kemp,15 the compound wall of a new home collapsed. This compelled the purchasers to undertake expensive repairs. The court awarded the purchasers damages, under section 7(1) of the South Australian Act. The vendors’ agent had made a misrepresentation to the purchasers that council approval had been accorded for the wall, which was a false statement. 16 An exemption clause that was inconsistent with an oral undertaking given prior to or at the time of formation of the contract, will be set aside. This was the ruling in J. Evans & Son (Portsmouth) Ltd v. Andrea Merzario Ltd.17 Moreover, in Mendelssohn v. Normand Ltd,18 a car park attendant had clearly promised to lock a car after parking it. The court deemed this to be an implied promise by the attendant, and ruled that this promise superseded a printed exemption clause that was not consistent with this promise. 19 In Council of the City of Sydney v. West,20 the plaintiff parked his car at the car park maintained by the council. At that time, he was given a ticket with an exclusion clause that the council was not responsible for any loss or damage to the vehicle, regardless of the reason behind the damage or loss. The plaintiff claimed that the council was obliged to care for his car and to ensure its safety against any fraudsters. 21 The High Court upheld the plaintiff’s claim and held the exemption clause to be invalid. Ronald purchased the car, relying on the promise made by Auto Angels’ employee. As per the decision in Mendelssohn v. Normand Ltd, the printed exemption clause will be outdated by the promise. Hence, Auto Angels cannot evade liability for breach of contract. In addition, the company will be liable for fraudulent misrepresentation, under the provisions of contract law. Consequently, Ronald can rescind the contract on the grounds of fraudulent misrepresentation. The BMW car had been described by the Auto Angels’ employee as being in good condition, due to the care taken by its previous owner. However, Ronald came to know that its poor condition was due to rash use and lack of servicing for several years. Auto Angels cannot rely on the exclusion clause, since it was not incorporated into the contract. It can be surmised that Barry can rescind the contract for fraudulent misrepresentation of a contractual term. Hence, Barry can rescind the contract and get back the $34,000 paid by him for the car. He can also claim compensation for breach of contract and fraud against Auto Angels, under the provisions of contract law. Bibliography Books Gillies, P., Concise Contract Law, (1988). Latimer, P., Australian Business Law 2012, (2012 Ed, 2012). Poole, J., Textbook on Contract Law, (12 Ed, 2014). Cases Alati v. Kruger (1955) 94 CLR 216. Bettini v. Gye (1876) 1 QBD 183. Council of the City of Sydney v. West (1965) 114 CLR 481. Crawford v. Parish (1991) 105 FLR 361. Curtis v. Chemical Cleaning and Dyeing Co [1951] 1 KB 805. J. Evans & Son (Portsmouth) Ltd v. Andrea Merzario Ltd [1976] 1 WLR 1078. Lloyd’s Ships Holdings Pty Ltd v. Davros Pty Ltd (1987) 72 ALR 643. Mendelssohn v. Normand Ltd [1970] 1 QB 177. Vettese v. Kemp [2000] SASC 154. Others Lawhandbook, Cited at: http://www.lawhandbook.org.au/handbook/ch12s01s03.php (visited on 15/3/14). Misrepresentation Act 1972 (SA). Read More