HI6027 Individual Assignment Case Study 1 (10 marks) Adam wants to sell his flower shop business to Eve. Adam states that the flower shop turns over $600,000, and showed Eve a few monthly receipts to show that the company is turning over up to $50,000 per month on average. What Adam did not tell Eve was that during three months of the year during winter the flower shop only makes approximately $30,000 per month due to less variety on offer to customers. This impacts on the total annual turnover of the flower shop so it actually makes approximately over $540,000 annually in turnover only. Eve bought the business from Adam on the evidence of Adam’s claims, and also on the belief that she can do a better job than Adam and increase the shop’s sales twofold. Months after purchasing the business from Adam, Eve realised that the business only turns over so much, and is barely enough to keep the business running and pay its overheads. The business was therefore unprofitable. 1. Advise Eve of her rights, if any, against Adam and any remedies available for her under common law 2. Would your advice be different if Eve has asked Adam the exact turnover of the business? Case Study 2 (10 marks) Bowral Heritage Farms and Brian’s Flower Shop have been doing business together for over 10 years. Brian, the owner of the flower shop, orders flowers from Robert, the owner of Bowral Heritage Farms for his shop in the city. Both Brian and Robert are septuagenarians and, despite their age, still continue to work and be actively involved in their respective businesses. Unfortunately, they have not moved on with technology and still continue to do business by post. On Mondays, Brian would post his order of flowers to Robert, who would usually receive the order the following day, and would send his confirmation the same day which Brian would receive on the Wednesday. Ordered flowers are then delivered Thursday. This has been their way of doing things since they started doing business together. One Wednesday Brian, after not having received Robert’s confirmation of the order he posted last Monday, decided that Robert would probably not be able to fulfil the order because of the volume (Brian received a huge order for a wedding that weekend). Brian decided to order from another supplier Wednesday 1 afternoon for delivery the following day and, because of the short notice, paid a premium for his order. On Thursday Robert’s flower delivery and the other supplier’s arrived to the annoyance of Brian. Brian refused to pay Robert for his order as he thought Robert was not going to fulfil the order after not receiving his confirmation on Wednesday. What Brian and Robert were not aware was, there was a postal strike on Wednesday which delayed Robert’s confirmation mail of Brian’s order to Thursday afternoon instead. 1. Advise Robert of his options using case law 2. Would your advice be the same if Robert’s mail, instead of confirming the Brian’s order, advised Brian that he is only able to fulfil half of Brian’s order and delivered only half of what Brian ordered? Support your answer using case law END OF ASSIGNMENT 20% and 1500 words limit. This assessment will cover first five weeks of the lectures. Lecture 1 HI6027 BUSINESS AND CORPORTIONS LAW Week 1 Introduction to Australian Legal System PART 1 Chapter 1 ï‚§ï€ Introduction to the course ï‚§ï€ Outline the assessments ï‚§ï€ Outline the importance of tutorials and preparation for tutorials. HI 6027 – Business and Corporations Law 3 3 HI 6027 – Business and Corporations Law 1 W ―Law is basically a device to regulate the economic and social behaviour of society.‖ Law has been defined as a set of rules, developed over a very long period of time, regulating people‘s interactions with one another. HI 6027 – Business and Corporations Law ï‚§ï€ Two main sources of law in Australia: HI 6027 – Business and Corporations Law 5 5 ï‚§ï€ Common law is the law created by the reported decisions of judges. ï‚§ï€ Common law is also known as: case law; ïƒ˜ï€ precedent; unenacted law. HI 6027 – Business and Corporations Law 2 Statute law ï‚§ï€ Statute law are the laws created by State and Federal parliaments. ï‚§ï€ Statute law is also known as: ïƒ˜ï€ legislation; Acts of Parliament; enacted law. ï‚§ï€ Statute law also includes laws made by other government bodies. ï‚§ï€ This is known as delegated legislation and takes the form of: ïƒ˜ï€ by-laws; ïƒ˜ï€ orders; rules and regulations. HI 6027 – Business and Corporations Law ï‚§ï€ ï‚ Today, statute law is the most important source of law as the great majority of law comes from Parliament. ï‚§ï€ ï‚ Statute law overrules common law in the event of a clash between the two. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 9 9 HI 6027 – Business and Corporations Law 3 ï‚§ï€ ï‚ There are many different legal systems throughout the world. ï‚§ï€ ï‚ It is possible to roughly classify the world‘s legal systems into 2 main groupings under common law: civil law and criminal law systems. ï‚§ï€ Both impact on business. HI 6027 – Business and Corporations Law ï‚§ï€ A basic classification of laws under the common law system in Australia: HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 11 11 ï‚§ï€ Civil – an action brought by one individual against another. Emphasis is on remedies ï‚§ï€ Criminal – actions are brought by the Crown (state) against an accused individual. Emphasis is on punishment HI 6027 – Business and Corporations Law 4 Major and minor types of laws ï‚§ï€ An overview of the main types of laws in the English legal system: HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 13 13 ï‚§ï€ ï‚ English law has come from the Parliament in the form of statutes. ï‚§ï€ ï‚ While statue law assumes the existence of common law, in the event of a conflict between common law and statute law, statute law will prevail. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law Origins of Australian Law HI 6027 – Business and Corporations Law 5 Origins of Australian law The doctrine of reception Colonies established by England were classified as either: i Territory acquired by treaty or military victory, in which case the existing institutions were retained; or ii Territorythatwasterranullius—thatis,the inhabitants were not recognised and English ideas of justice and the English legal system applied. Native title No land rights under common law because of the type of society in which Aboriginals lived. No recognition was given to the rights of the Aboriginal people and the land was not owned by any group of people. In Mabo v. Queensland (No. 2) (1992) the High Court acknowledged that Australia had not been terra nullius and that common law recognises a form of native title to land. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 17 17 Customary law The Mabo decision related specifically to Aboriginal land rights. In Walker v. New South Wales (1994) the court discussed the validity of Aboriginal customary law relating to criminal cases. The High Court decided that customary law had been extinguished by the criminal legislation passed by the states and territories. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 18 18 HI 6027 – Business and Corporations Law 6 Origins of Australian la Federation 1901 The Commonwealth of Australia Constitution Act 1900 (Imp) — the six colonies became six states and the federal system of government was created. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law Origins of Australian law Federation 1901 A new level of government established — a national parliament with jurisdiction set down in the Commonwealth Constitution (with some exclusive powers). State parliaments had jurisdiction within their own borders on any matters not specifically reserved for the Commonwealth (residual powers — customs, currency, trade, military). HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 20 20 1901 to 1986 The Statute of Westminster 1931 (Imp) — extended the operation of the Colonial Laws Validity Act to Acts of the federal Parliament. The Australia Act(1986) and the Australia (Request and Consent) Act 1985 (Cth) — marked the end of constitutional dependence on the British system. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 21 21 HI 6027 – Business and Corporations Law 7 Commonwealth & state powers Legislative Powers: exclusive powers of the Commonwealth —for example, defence and customs, where only the Commonwealth can legislate; concurrent powers, forming the bulk of the Commonwealth‘s powers, with both the Commonwealth and the states having the power to legislate in these areas; and residual powers, which are powers exclusive to the states as the Constitution is silent on particular areas—for example, education and transport. HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law ï‚§ï€ ï‚ Where there is any inconsistency between laws made under the Exclusive Powers provisions of the Commonwealth Constitution and a State, section 109 provides that the State laws, to the extent of the inconsistency, shall be invalid. ï‚§ï€ ï‚ Most of the Commonwealth powers are held concurrently (shared) with the states (s 51). HI 6027 – BCuesdinreicssSpaenndcCeor r2p0o1r1ations Law 2 HI 6027 – Business and Corporations Law 8 Commonwealth & state powers ï‚§ï€ To change the Constitution requires a referendum – which is set out in section 128. Approved by an absolute majority of both Houses of Parliament or passed twice in one house. Referendum (vote) approved by majority of the voters in at least four states. The Governor-General gives Royal Assent. HI 6027 – Business and Corporations Law 25 25 Of the 44 proposals to change the Constitution – only 8 have been successfull (see table 2.4) ï‚§ï€ The doctrine of separation of powers seeks to confine the exercise of the legislative, executive and judicial branches of government exclusively to their respective institutions (Parliament, Cabinet and the courts). on of powers 27 HI 6027 – Business and Corporations Law 9 Separation of powers ï‚§ï€ Under the doctrine of separation of powers, the legislature is the supreme law-maker but in reality there is no separation between the executive and the legislature. HI 6027 – Business and Corporations Law 28 28 HI 6027 – Business and Corporations Law 29 29 HI 6027 – Business and Corporations Law Original and Appellate Jurisdiction A court‘s jurisdiction is established by its enabling Act. Original jurisdiction is the authority to hear a case when the case is first brought before a court. Appellate jurisdiction is the authority of a court to hear appeals from decisions of courts of a lower level in the same court hierarchy. 31 HI 6027 – Business and Corporations Law 31 Inferior (Magistrate’s or Local) Courts Inferior or local courts are located at the bottom of the Court Hierarchy, possessing original jurisdiction only. Generally presided over by a Magistrate. The aim of these courts is to settle disputes locally, quickly and cheaply. 32 Inferior (Magistrate’s or Local) Courts There is less emphasis on formality than in higher courts. Still expected to follow procedural rules and the laws of evidence. The jurisdiction of local courts differ from state to state. HI 6027 – Business and Corporations Law 11 Intermediate courts Form the middle level court in most hierarchies with original civil jurisdiction. In their criminal jurisdiction they deal with the bulk of indictable offences except for the more serious crimes and, in NSW, Victoria and WA, they have limited appellate jurisdiction. NB. There is no intermediate court in Tas, the NT and the ACT 34 Supreme Courts Highest court in each State or Territory, a court of record, presided over by a judge. They have unlimited original jurisdiction in both civil and criminal matters but hear only most serious cases. They have appellate jurisdiction. • Vic, NSW, Qld, the ACT and NT have established separate Courts of Appeal. Specialist Courts There are a number of other courts, set up with specialist expertise, in the various states and territories. These include: ¥ Family Courts (Western Australia); – Family Violence Court; – Family Matters Court; ¥ Indigenous Courts; ¥ Drug Courts; ¥ Compensation and Work Health Courts; ¥ Land and Environment Courts; ¥ Environment, Resources and Development Court – SA; ¥ Liquor Commission – WA. 36 ¥ HI 6027 – Business and Corporations Law 12 Federal court system Federal Magistrates Courts Established in 2000 to ease the workload on other Federal Courts and presided over by a magistrate. Jurisdiction concurrent with Federal Court and Family court. Deals with: ïƒ˜ï€ minor family law, bankruptcy, migration, copyright, industrial law and matters relating to competition and consumer matters ; ïƒ˜ï€ applications under the Judicial Review Act; ïƒ˜ï€ appeals from the AAT; ïƒ˜ï€ matters arising under HREOC. 37 Family Court Established by the Family Law Act 1975 (Cth). Exercises both an original and appellate jurisdiction over all matrimonial matters. Appeals only lie on questions of law to Full Court of the Family Court. 38 Federal Court Jurisdiction established by the Federal Court of Australia Act 1976 (Cth). ïƒ˜ï€ ï‚ In its original jurisdiction the court hears matters relating to bankruptcy,copyright,competition and consumer practices, intellectual property and taxation, immigration and social services. ïƒ˜ï€ ï‚ Its appellate jurisdiction hears appeals from single judges of the Supreme Courts of the Territories, as well as appeals from decisions of single judges of the Federal Court. 39 HI 6027 – Business and Corporations Law 13 High Court Established under s 71 of the Australian Constitution. Limited original jurisdiction in those cases authorised by the Commonwealth Constitution. Appellate jurisdiction in both civil and criminal matters arising from the State Supreme Courts and Federal Courts. High Court Appeals do not lie ―as of right‖. Approval to hear an appeal must first be granted by the High Court. The High Court is the final court of appeal within the Australian legal system. 41 How law is applied by the Courts and Statute HI 6027 – Business and Corporations Law 42 42 HI 6027 – Business and Corporations Law 14 Rules of precedent A court is part of the same ̳hierarchy‘ if it is ̳linked‘ by a right of appeal. The position of the court of record in the court hierarchy will determine whether the ratio is binding or persuasive. For example, Vic and NSW Court of Appeal decisions bind their Supreme Cts. Statements of principle not strictly necessary for a decision and not binding as such (obiter) by a court of record are of persuasive value only. Decisions of courts in other court hierarchies are only of persuasive value (influence a decision). The persuasive value of obiter or a decision from a court in another hierarchy will depend upon: the status of the court, and the status of the judge. HI 6027 – Business and Corporations Law 15 HI 6027 – Business and Corporations Statute law is made by parliament and subordinate bodies to which it has delegated legislative power. Statute law can last forever or until it is changed. Where statute law and common law conflict, statute law will prevail to the extent of the conflict. 47 HI 6027 – Business and Corporations Law 16 Statutory interpretation With the increasing complexity of legislation (Statute/Acts) sometimes the ̳real‘ meaning of a word or phrase requires clarification. Doubt arises because of ambiguities or even about the operation of the Act itself which create problems in applying any set of written rules. utory interpretation Courts make use of a number of statutory rules and common law rules. 50 When a dispute arises, and if the definitions in the Act are of no help, there are a number of sources of guidance for the courts: Acts Interpretation Acts (a purposive reading directing the courts to interpret legislation in such a way that it reflects the intention of the legislators) HI 6027 – Business and Corporations Law 17 Common law rules: The literal or plain meaning approach The Act is read as a whole and, if its meaning is plain, that is the end of the matter. No attempt is made by the court to introduce extrinsic material. — see Fisher v. Bell (1961) 52 Common law rules: The golden rule approach An extension of the literal approach, and is used when the plain meaning results in an absurdity, an injustice or an inconsistency with the intentions of Parliament. — see Lee v. Knapp (1967) 53 Common law rules: The mischief approach Where words/phrases are ambiguous, vague or uncertain, look at the state of the law prior to the passing of the Act and compare with the overall intention of the Act, then ask ―what mischief is the Act aiming to remedy?‖ — see Smith v. Hughes (1969) lecture 2 HI 6027 BUSINESS AND CORPORATIONS LAW Introduction to Contract Law And Formation of a Contract ‖Contracts are a fundamental part of people‘s daily lives and form the basis of commercial law.‖ Some basic examples: sales contracts – buying food employment contracts – going to work rental contracts – leasing a flat HI 6027 – Business and Corporations Law 2 The study of contract law involves an examination of common law principles and the extent to which they have been affected by legislation. HI 6027 – Business and Corporations Law 3 HI 6027 – Business and Corporations Law 1 Contract & Agreement distinguished Terms ̳contract‘ and ̳agreement‘ are often used to mean the same thing. Traditional definition of contract is: ’a legally enforceable agreement’ An agreement is NOT necessarily a contract. HI 6027 – Business and Corporations Law 4 Legally Enforceable For legality, the agreement must contain a promise and must have been intended by the parties to be legally enforceable in a court of law. HI 6027 – Business and Corporations Law 5 Contract defined A contract can be defined as: ―An agreement concerning promises made between two or more parties with the intention of creating certain legal rights and obligations upon the parties to that agreement which shall be enforceable in a court of law.‖ HI 6027 – Business and Corporations Law HI 6027 – Business and Corporations Law2 Creation of an Apparent Simple Contract Three elements required: • Intention to contract, • Agreement between the parties and • Consideration. Essential elements: HI 6027 – Business and Corporations Law 8 Steps for creation: HI 6027 – Business and Corporations Law 9 HI 6027 – Business and Corporations Law Steps for validity: HI 6027 – Business and Corporations Law 10 Intention to Create Legal Relations HI 6027 – Business and Corporations Law 11 Step 1: Intention to create legal relations The fact that parties have reached agreement does not necessarily mean that a contract has been formed. HI 6027 – Business and Corporations Law 4 Step 1: Intention to create legal relations There must be clear intention by the parties that the agreement containing their promises is intended to be enforceable in law. 13 e legal relations Express intention Consider terms that expressly and clearly state the parties‘ intentions. Almost invariably expressed in the negative. 14 HI 6027 – Business and Corporations Law 14 Intention to create legal relations Implied intention The courts have to determine objectively whether the parties intended the agreement to be legally enforceable To Help, consider two categories: social, family, domestic, voluntary commercial or business HI 6027 – Business and Corporations Law 5 Intention to create legal relations Implied intention Traditionally: social, family, domestic, voluntary • presumed no intention commercial or business • presumed intention to be bound Intention to create legal relations Implied intention Traditionally: Apply the relevant presumption. The presumption could be rebutted by evidence sufficient to satisfy the court. 17 Intention to create legal relations Implied intention 18 HI 6027 – Business and Corporations Law 1 HI 6027 – Business and Corporations Law 6 Intention to create legal relations Non-commercial agreements Three types: Social agreements – ones made between friends or acquaintances; Domestic agreements – ones made between family members and relatives; and Voluntary agreements – where the parties may volunteer their services. 19 Under the ̳traditional‘ approach no intention is presumed to exist, though this is rebuttable by the evidence produced by the plaintiff. – Other domestic arrangements In the case of other domestic situations the courts may look at the words and conduct of the parties as well as the seriousness of the consequences: Wakeling v Ripley (1951) HI 6027 – Business and Corporations Law 7 – General In business and commercial agreements the courts assume that there is an intention to create legal contractual relations: Edwards v Skyways Ltd(1964) 22 While the common law may provide no remedy for misleading advertising, because when it is regarded as a puff or an invitation to treat, and therefore non-contractual, there may be statutory remedies under the provisions of the Australian Consumer Law, which deals with misleading or deceptive conduct 23 HI 6027 – Business and Corporations Law 23 Agreement between the Parties HI 6027 – Business and Corporations Law 24 HI 6027 – Business and Corporations Law 8 Agreement Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 25 Step 2: Is there agreement between the parties? Generally characterised by an ‘offer’ by one party and an ‘acceptance’ by another. Important in determining the time, place and contents of the agreement. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business26Law/6e As ̳offer-acceptance‘ approach does not always work, the Courts have taken a ‘global approach’ by examining the acts and conduct of the parties. – Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) HI 6027 – Business and Corporations Law 9 Agreement arising by conduct Agreement may be established by implication arising from conduct of the parties: – Clarke v Earl of Dunraven and Mount-Earl [1897] 28 Rules as to offers There must be: an intention or willingness to be bound; a firm promise; and communication of the offer • (in writing, orally or by conduct) Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e Statements that are not offers An offer must be distinguished from an invitation to treat: This is an offer to consider offers and cannot create an agreement if there is a purported acceptance. HI 6027 – Business and Corporations Law 10 Rules relating to offer Invitation to treat Can include: ïƒ˜ï€ auctions; ïƒ˜ï€ advertisements; catalogues / Internet; price lists; goods in shop windows and shelves. Look at intention of the parties. 31 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law Auctions With a ̳reserve price‘: the auctioneer calling for bids is not making an offer but is asking for offers from prospective purchasers. With no ̳reserve price‘: the auctioneer becomes the offeror and must sell the goods to the highest bidder. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e 32 HI 6027 – Business and Corporations Law Tenders Tenders are not normally offers unless the tender states its exact needs, as distinct from what it may only require. Requests for Information A request for information is not a firm promise and so is not an offer. Nor does it destroy the offer as it is only an attempt to elicit information. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – HI 6027 – Business and Corporations Law 11 Rules relating to offe Notice of the offer The offer must be communicated to the offeree/s. The offer may be directed to one person, a group of people, or the world at large – Carlill v Carbolic Smoke Ball Co. (1893) Copyright ©2012 Pearson Australia (a division of Pearson 34 Australia Group Pty Ltd) – HI6027-BusinessandCorporationsLaw 9781442547766/G3i4bson & Fraser/Business Law/6e Rules relating to offer Options To keep an offer open for a specified time (an option), it must be supported by consideration. – Goldsborough Mort & Co Ltd v Quinn (1910) 35 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/G3i5bson & Fraser/Business Law/6e HI6027-BusinessandCorporationsLaw Terms in the Offer Any terms contained in the offer must be brought to the notice of the offeree. Any and all conditions must be strictly followed. HI 6027 – Business and Corporations Law 12 Termination of offer 37 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law Acceptance be made in reliance of the offer The offeree must intend to accept the offer. – R v Clarke (1927) 38 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law Acceptance must be strictly in accordance with the terms of the offer If the offeror specifies a method of acceptance it must be followed: – Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1954) Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business39Law/6e 39 HI 6027 – Business and Corporations Law HI 6027 – Business and Corporations Law 13 Rules relating to acceptance Acceptance must be communicated Acceptance must be communicated to the offeror, either by words or by conduct. Mental acceptance, unless communication has been waived by the offeror, is insufficient. – Felthouse v Bindley (1862) Who can make an acceptance? Acceptance must be conveyed by someone with authority. – Powell v Lee (1908) Cross-Offers Cross-offers do not give rise to an agreement. – Tinn v Hoffman & Co (1873) 41 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business41Law/6e HI 6027 – Business and Corporations Law Acceptance must be absolute and unconditional Acceptance must be absolute and unqualified or it may amount to a counter-offer. – Masters v Cameron (1954) HI 6027 – Business and Corporations Law 14 Rules relating to acceptance The postal rule Where the parties contemplate the use of the post as a medium of exchange of promises, the rules as to the time of acceptance change as follows: While an offer by letter is not effective until received by the offeree. Acceptance is effective as soon as it is posted. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/G4i3bson & Fraser/Business Law/6e – Adams v Lindsell (1818) 43 HI6027-BusinessandCorporationsLaw The postal rule If revocation of the offer is to be effective, it must be received by the offeree before they post their letter of acceptance. – Byrne & Co v Leon Van Tienhoven & Co [1880] Instantaneous communications Where the communication of acceptance is instantaneous, the contract is effective when the acceptance is received. – Entores Ltd v Miles Far East Corp (1955) HI 6027 – Business and Corporations Law 15 Rules relating to acceptance Instantaneous communications In cases of agreements communicated by means of telephone, fax or email, the contract is formed when and where the offeror hears or receives the offeree‘s acceptance. The Electronic Transaction Act 1999 (Cth) provides guidance on times for receipt and dispatch. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business46Law/6e Consideration HI 6027 – Business and Corporations Law 47 Formal Contracts No need for consideration as the contract is valid because of its form — such as, deeds. Simple Contracts Valuable consideration is required for the ̳agreement‘ to become a contract. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business48Law/6e HI 6027 – Business and Corporations Law 16 Consideration For simple contracts, Step 3: Is consideration present? Consideration is what each contracting party bargains for and gives in exchange for the return promise or performance of the other party. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business49Law/6e The aim in defining consideration is to enable a distinction to be drawn between promises of a gratuitous nature and given freely — such as gifts, and those which are onerous or ̳paid for‘ by the incurring of some obligation. 50 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/G5i0bson & Fraser/Business Law/6e HI6027-BusinessandCorporationsLaw Consideration is the price you pay to buy the other person‘s promise. It is this concept of ̳price paid‘ which was adopted by Sir Frederick Pollock in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915): An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought; and the promise thus given for value is enforceable. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business51Law/6e HI 6027 – Business and Corporations Law 17 Consideration defined The promisor is the person undertaking the promise. The promisee is the person who is receiving, or the recipient of, the promise. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business52Law/6e 52 HI 6027 – Business and Corporations Law 1. Consideration is essential to the validity of every simple contract It may be: something the promisee gives the promisor; the carrying out of some act; or refraining from doing something that the promisee had a legal right to do. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e 53 HI 6027 – Business and Corporations Law 2. Consideration must not be past Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 18 Rules for consideration 2. Consideration must not be past Consideration must be: Present (executed) consideration which is an act done in return for a promise. Future (executory) consideration where the parties exchange promises. Each promise being the consideration for the other. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business55Law/6e 55 HI 6027 – Business and Corporations Law 2. Consideration must not be past Past consideration occurs where a promise is given after an act has been performed. This is viewed as past consideration and is generally not enforceable. The act must de done in reliance of the promise. Roscorla v Thomas [1842] 56 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 2. Consideration must not be past The rule that past consideration is no consideration sometimes means that a promise, made seriously, generally cannot be enforced by the promisee if it relates to PAST acts. However, if the promise also pertains to the future, that part of the promise will be enforceable: Anderson v Glass [1869] Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business57Law/6e HI 6027 – Business and Corporations Law 19 Rules for consideration 2. Consideration must not be past Past consideration can be good consideration if it was provided at the request of the promisor and can show that: ïƒ˜ï€ ï‚ the act was done at the promisor‘s request and ïƒ˜ï€ ï‚ the parties understood that the act would be remunerated and ïƒ˜ï€ ï‚ the promise would have be enforceable if it had been promised in advance of the act. Lampleigh v Braithwait (1615) 58 Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 58 3. Consideration must move from the promisee BUT it need not move to the promisor: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co. Ltd (1915) Where there are joint promisees and only one has given consideration, the other can still enforce the promise: Coulls v Bagot’s Executor and Trustee Co Ltd (1967) Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e 59 HI 6027 – Business and Corporations Law 4. Consideration must have value but need not be adequate Consideration must have value but need not be adequate as this is something only the parties to the contract can decide: Chappell & Co Ltd v Nestlé Co Ltd (1960) HI 6027 – Business and Corporations Law Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 20 Rules for consideration 5. Consideration must be sufficient This means that it must have some legal value. If not, it may be considered insufficient and no consideration at all. As long as consideration exists, the courts will not be concerned about its adequacy. Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/G6i1bson & Fraser/Business Law/6e 61 HI6027-BusinessandCorporationsLaw Examples of insufficient consideration Repeating an existing duty imposed by the law: Glasbrook Bros Ltd v Glamorgan City Council (1925) Repeating an existing duty owed to the promisor: Stilk v Myrick (1809) but compare: Hartley v Ponsonby (1871); Williams v Roffey Bros & Nicolls (Contractors) Ltd (1990) HI 6027 – Business and Corporations Law Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442547766/Gibson & Fraser/Business Law/6e Performing an existing legal duty for a third party can be sufficient consideration: Scotson v Pegg (1861) Part-payment of a debt on its own is insufficient consideration: Foakes v Beer (1884) Part-payment by a third party is sufficient consideration: Hirachand Punamchand v Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – Temple [1911] 63 HI 6027 – Business and Corporations Law 63 9781442547766/Gibson & Fraser/Business Law/6e HI 6027 – Business and Corporations Law 21 Rules for consideration Forbearance to sue can be sufficient consideration: Hercules Motors Pty Ltd v. Schubert (1953) Composition between a debtor and their creditors under the Bankruptcy Act 1966 (Cth) is sufficient to discharge the debt. Moral obligations Moral obligations as well as natural love and affection will not convert a promise into good consideration: Eastwood v Kenyon (1840) 6. Consideration must be possible of performance. 7. Consideration must be definite. 8. Consideration must be legal. 9. Consideration must be referable to the other party’s promise. Lecture 3 HI 6027 BUSINESS AND CORPORATIONS LAW Capacity of the Parties; Genuine consent; Legality of Object and Form Capacity Step 4: Determining validity – Do the parties to the contract have full contractual capacity? Only a normal, sane, sober adult person has FULL capacity to make a contract. This means that they have the ability to understand what it is that they are entering into. 2 Capacity Step 4: Determining validity – Do the parties to the contract have full contractual capacity? Under common law and (in some states, statute law) some classes of people are treated as NOT having full contractual capacity which affects the VALIDITY of any contracts entered into by those persons. 3 HI 6027 BUSINESS AND CORPORATIONS LAW 1 Capacity Parties with limited capacity 4 Capacity – Infants/Minors Full contractual capacity from 18. Persons under 18 years of age are considered infants or minors. The law relating to capacity of minors is found in: common law statute in Vic, NSW and SA 5 Capacity – Infants/Minors Contracts with infants/minors may be classified under one of three heads 6 HI 6027 BUSINESS AND CORPORATIONS LAW 2 Capacity – Infants/Minors Valid Contracts Can be created by the infant paying cash or entering into: • contracts for necessaries • beneficial contracts of service 7 Capacity – Infants/Minors Valid Contracts – Necessaries Includes articles and services necessary for the reasonable comfort of the infant, as well as basic items of food, clothing and shelter. Lifestyle and the infant‘s situation is considered in the determination if goods and services are capable of being necessaries or not. 8 Capacity – Infants/Minors Valid Contracts – Necessaries The plaintiff must establish that: The goods or services could be necessaries: a question of law: Bojczuk v Gregorcewicz [1961] and The goods or services were necessaries at the time of sale or delivery: a question of fact Scarborough v Sturzaker (1905) The infant only has to pay a reasonable price for necessaries and this depends upon all the facts. 9 HI 6027 BUSINESS AND CORPORATIONS LAW 3 Capacity – Infants/Minors Valid Contracts – Beneficial Contracts of Service Include contracts of: employment ï€ apprenticeships ï€ training ï€ education 10 Capacity – Infants/Minors Valid Contracts – Beneficial Contracts of Service To determine whether a contract is valid the courts: ï€ examine the contract as a whole ï€ weigh the onerous terms against the beneficial terms ï€ decide whether there is benefit to the infant: Hamilton v Lethbridge (1912); but compare Mercantile Union Guarantee Corp Ltd v Ball [1973] 11 Capacity – Corporations Corporations have virtually the same legal capacity as natural persons under section 124 of the Corporations Act 2001 (Cth). Incorporation under the Act gives a company a separate legal existence – which allows it to contract. 12 HI 6027 BUSINESS AND CORPORATIONS LAW 4 Capacity – Bankrupts Bankrupts have a restricted contractual capacity. If a bankrupt wishes to obtain goods or services of more than $5,009 in value, they must disclose to the lender that they are an undischarged bankrupt under the Bankruptcy Act 1966 (Cth). NB. The threshold for bankruptcy is going to change every quarter with the CPI. 13 Mentally unsound/intoxicated If, at the time of making a contract, a person is suffering from mental instability or drunkenness: to the extent that they are incapable of understanding its nature, AND the other party knew (or ought to have known) this, the contract is voidable. 14 O’Connor v Hart [1985] Mentally unsound/intoxicated If the contract is for the supply of necessaries, the person who is mentally unsound or the drunken person will have to pay a reasonable amount for them. 15 HI 6027 BUSINESS AND CORPORATIONS LAW 5 Genuine Consent Genuine consent Step 5: Is there genuine consent? Ask ―what have the parties agreed to?‖ There must be genuine agreement between the parties to a contract as to its nature and scope. 17 Genuine consent 18 HI 6027 BUSINESS AND CORPORATIONS LAW 6 Mistake If a mistake operates, it often renders a contract void ab initio (from the very beginning). Places the parties in the same position as if no contract had ever been made. Note: misrepresentation only makes the contract voidable and this is an important difference if third parties are involved. 19 Mistake of fact Only mistakes of fact can render a contract void, and even then only a few mistakes will invalidate a contract. Note: money paid under a mistake of law may be recoverable through the remedy of restitution: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 20 Common mistake There is agreement but both parties make the same mistake as to the existence or identity of the subject matter. The mistake must go to the existence or identity of the subject matter: Pritchard v Merchant’s and Tradesman’s Mutual Life Assurance Society (1858) and not accidental qualities or attributes: Leaf v International Galleries (1950) 21 HI 6027 BUSINESS AND CORPORATIONS LAW 7 Common mistake There is no definitive rule that the non- existence of the subject matter automatically renders the contract void. If there is an implied promise of the existence of the subject matter and the other party acts in reliance of that promise to their detriment, common mistake will not lie: McRae v Commonwealth Disposals Commission (1951) 22 Mutual mistake The parties misunderstand each other and are at cross-purposes (talking about different things) so there is no genuine agreement between the parties: Raffles v Wichelhaus (1864) An objective test of the reasonable person should be applied to the words or conduct of the parties, and if the evidence is so conflicting that it would be impossible to infer any agreement, there will be no contract. 23 Unilateral mistake 24 HI 6027 BUSINESS AND CORPORATIONS LAW 8 Unilateral mistake Lack of agreement between the parties. Only one of the parties is mistaken, and the other is, or ought to be, aware of this and does nothing to correct the mistake. 25 Unilateral mistake Where parties meet face to face The plaintiff must be able to rebut the presumption that they did not intend to deal with the party in front of them. The plaintiff has to show that they intended to deal with another person and no one else or the court will treat the contract as voidable due to misrepresentation, not void for mistake: Phillips v Brooks [1919] and Lewis v Averay [1972] 26 Unilateral mistake Where parties deal through the post In the case of postal dealings, the courts ask ―who did the plaintiff intend to deal with – a particular third party or the offering party even though they believed them to be someone else‖: Cundy v Lindsay [1878] 27 HI 6027 BUSINESS AND CORPORATIONS LAW 9 Unilateral mistake Where the mistake is to a fundamental term Where the mistake goes to the existence or content of a term, the English courts may hold that the contract is void as there was not a true acceptance of the offer: Hartog v Colin & Shields [1939] 28 Unilateral mistake Where the mistake is to a fundamental term It is not necessary for the party not mistaken to have actual knowledge of the mistake as long as they strongly suspected there was a mistake of a fundamental character. The High Court has held that such contracts are voidable: Taylor v Johnson (1983) 29 Mistake and written documents Non est factum (‘it is not my deed’) The signer must show that the document signed is essentially or fundamentally different from that which they thought it was and that failure to read was not due to carelessness on their part: Petelin v Cullen (1975) 30 HI 6027 BUSINESS AND CORPORATIONS LAW 10 Mistake and written documents Non est factum (‘it is not my deed’) There are only two groups of persons who can raise the defence: Those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; and Those who through no fault of their own are unable to understand the meaning of a particular document. 31 Remedies for mistake At common law: contract is void ab initio and can be used as a defence against an action for the equitable remedy of specific performance. In Equity: • rescission when contract is voidable (mistake as to fundamental term) • rectification • restitution 32 Remedies for mistake By statute: a variety of remedies under the Australian Consumer Law, including misleading or deceptive conduct (s18), unconscionable conduct (ss 20-21) and false representations (s 29). 33 HI 6027 BUSINESS AND CORPORATIONS LAW 11 Misrepresentation NOTE: Misrepresentation only makes the contract voidable. Where there are only two parties the outcome is no different to that of mistake. However, where there are three parties involved, the question of the timing of the rescission of the contract becomes important in terms of whether the third party can get title. 34 Representation A representation is a statement of fact made by one party to another, either before or at the time of contracting, relating to an existing fact or a past event, which induces the contract. 35 Representation Three Types of Misrepresentation Fraudulent Misrepresentation – intention to induce a person to enter into a contract. Innocent Misrepresentation – there is a lack of intentional deceit. Negligent Misrepresentation – statement made innocently but carelessly. 36 HI 6027 BUSINESS AND CORPORATIONS LAW 12 Fraudulent Misrepresentation There must be an intentional deceit. There must be: a false statement of fact the representation must be untrue the representor knew it was false, or did not believe it was true, or made it recklessly it was intended it would be acted upon it was acted upon and the innocent party suffered loss. 37 Fraudulent Misrepresentation A contract induced by fraud is voidable at the option of the innocent party. It remains binding until set aside: Derry v Peek (1889) NOTE: damages are claimed in tort. Tort of deceit 38 Innocent Misrepresentation A misstatement of a material fact, not known to be false, made by one party to another, which induces the other to enter into a contract. It is distinguished from fraudulent misrepresentation by the lack of intentional deceit and the right to recover damages. 39 HI 6027 BUSINESS AND CORPORATIONS LAW 13 Innocent Misrepresentation Common law prevails to the exclusion of equity. The appropriate remedy depends on whether the representation is a: condition or warranty. If condition — may sue for damages/or for a total failure to perform the contract. If warranty — may sue for damages only /no order for rescission in equity. 40 Negligent Misrepresentation An innocent but negligent misrepresentation can give rise to an action where a ̳special relationship‘ can be shown to exist between the parties: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] and Esso Petroleum Co Ltd v Mardon [1976] 41 Negligent Misrepresentation 42 Guidelines for negligent misrepresentation A special relationship exists between parties such that the person providing the information or advice must exercise a duty of care; Subject matter is of a serious or business nature; Person providing the advice realises that the recipient intends to act upon that advice or information; It was reasonable for the recipient to rely on the advice or information; and Damage was suffered by the recipient. Cop HI 6027 BUSINESS AND CORPORATIONS LAW 14 Statutory modifications 43 Statutory modifications to misrepresentation Both Commonwealth, state and territory consumer protection legislation have impacted on the area of misrepresentations by targeting conduct rather than contractual situations. Examples: misleading or deceptive conduct representations as to the future false representations Cop Duress Duress involves use of violence or illegal threats against a person, their goods or economic interest to force them to enter into a contract against their will. Lack of voluntary agreement. 44 Duress It only has to be one of the reasons for a person to enter into a contract and the effect on the contract is that it will be voidable at the option of the injured party: Barton v Armstrong (1976) 45 HI 6027 BUSINESS AND CORPORATIONS LAW 15 Duress 46 Undue influence Involves the improper use of a position of influence or power possessed by one person over another in order to induce that other person to act for their benefit. Lack of genuine consent to the agreement. 47 Types of undue influence Where a special relationship is presumed to exist: The defendant stands in an unequal relationship to the plaintiff in a relationship of influence or confidence— for example, doctor and patient. Onus of rebutting the presumption lies with the defendant. 48 HI 6027 BUSINESS AND CORPORATIONS LAW 16 Types of undue influence Where no special relationship is presumed to exist: The plaintiff must prove that the defendant exerted influence over them. If undue influence is established, the contract is voidable. 49 Undue influence Action based in equity and the usual remedy is rescission. Action must commence within a reasonable time or right to rescission may be lost: Allcard v Skinner (1887) 50 Unconscionable contracts Unconscionable or Unfair contracts In its equitable jurisdiction, the court will set aside a contract as unconscionable (unfair) where the defendant has abused their superior bargaining position in their dealings with the plaintiff: Commercial Bank of Australia v Amadio (1983) 51 HI 6027 BUSINESS AND CORPORATIONS LAW 17 Unconscionable contracts The plaintiff has to establish: They were in a position of ̳special disadvantage‘: Louth v Diprose (1992); Which substantially affected their ability to protect themselves; The defendant knew, or ought to have known, of the plaintiff‘s disability and not taken advantage of it; AND The actions of the defendant were unconscionable. 52 Unconscionable contracts A corporation, acting in trade or commerce, is prohibited from engaging in conduct which is, in all the circumstances, unconscionable. The Fair Trading legislation of the states and territories prohibits persons or suppliers from engaging in such conduct. 53 Legality of Object and Form HI 6027 BUSINESS AND CORPORATIONS LAW 18 Legality of object Step 6: Is the contract legal? Contracts can be illegal or void at both statute and common law. Distinction between the different categories of contract is important. Consequences flowing from each are different. 55 Void v. Illegal contracts 56 Void contracts An agreement rendered void at common law by statute is void and will not be enforced by the Courts. Any money paid or property transferred under such agreement may be irrecoverable. 57 HI 6027 BUSINESS AND CORPORATIONS LAW 19 Illegal contracts Illegal as formed A ̳contract‘ deemed illegal when it is formed is totally void. Illegality may arise either because the contract is of a kind prohibited by statute, or because it is of a class regarded as contrary to public policy. Neither party has any rights or remedies. 58 Illegal contracts Where contract becomes illegal Where the contract is not illegal at its creation, but subsequently becomes so, the guilty party has no rights; the innocent party is generally unaffected and can enforce their rights under the contract. “Illegal as performed” 59 Co Contracts void by statute The extent of the invalidity depends upon the terms of the statute. It may be possible to sever the void term out of the contract (for example, hire purchase agreements) and leave the remainder of the contract still valid. 60 HI 6027 BUSINESS AND CORPORATIONS LAW 20 Contracts illegal by statute Consider the intention of the statutory provision: Statute may expressly forbid Statute may expressly or impliedly prohibit the making of such a contract: Re Mahmoud v Ispahani [1921] Statute may require the performance of the contract in a particular way: Anderson Ltd v Daniel [1924] 61 Contracts illegal by statute Consider the intention of the statutory provision: Statute may be concerned with punishing (fine) particular behaviour Contract may be performed in a manner which statute prohibits: St John Shipping Corporation v Joseph Rank Ltd [1957] 62 Illegal at common law Contracts illegal at common law: Contracts to commit a crime, a tort or a fraud on a third party Contracts that are sexually immoral or which prejudice the status of marriage Contracts to the prejudice of public safety, or of good relations with other countries 63 HI 6027 BUSINESS AND CORPORATIONS LAW 21 Illegal at common law Contracts illegal at common law: Contracts prejudicial to the administration of justice: Public Service Employees Credit Union Co- operative Ltd v Campton (1984) Contracts which tend to promote corruption in public life: Parkinson v College of Ambulance Ltd (1925) Contracts to defraud the revenue Contracts that involve a breach of duty 64 Void at common law Three types of contract are void at common law: Contracts prejudicial to the status of marriage; Contracts which attempt to oust the jurisdiction of the courts; and Contracts in restraint of trade. 65 Restraint of trade Common law view is that such contracts: Injure the person involved by reducing their means of earning a livelihood; Deprive the public of the services of a person in their useful capacities; Discourage industry and enterprise; and Restrict competition. 66 HI 6027 BUSINESS AND CORPORATIONS LAW 22 Restraint of trade Clauses in contracts in restraint of trade are prima facie void as being contrary to public policy unless the restraint is reasonable: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] 67 Restraint of trade Reasonableness is determined by: The geographic extent; The time period involved; The nature of the business and the activity being restrained; and Whether the restraint is reasonable, both in the interests of the parties and the public. Restraint of trade Clauses in restraint of trade HI 6027 BUSINESS AND CORPORATIONS LAW 23 Restraint of trade Contracts of employment Generally unequal bargaining positions, restraint clauses are struck down unless: ï€ There is a proprietary interest being protected: Forster & Sons Ltd v Suggett (1918) ï€ They are reasonable length in time and area: Atwood v Lamont (1920) and ï€ They are reasonable or fair to both parties: A Schroeder Music Publishing Co Ltd v Macauley [1974] Restraint of trade Imposed upon vendor of a business Sale of a business assumes the parties are in a more equal bargaining position. Question of fact as to whether the restraint is reasonable but look carefully at the type of business: Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] 71 Restraint of trade Trading agreements A manufacturer or trader may want to exclude competition in order to maximise their profits. Depends upon the reasonableness of the clause at common law. Also impacted upon by legislation 72 HI 6027 BUSINESS AND CORPORATIONS LAW 24 Form Step 7: Form Consider – are there any statutory procedural requirements that need to be satisfied? A lack of compliance with the required formalities may make the contract void or unenforceable. Lecture 4 HI 6027 BUSINESS AND CORPORATIONS LAW Constructing the contract Terms of the contract The terms of the contract encapsulate the rights and obligations of the parties Breach of a term gives rise to an action for breach of contract Terms include both: • expressterms • impliedterms Types of terms 3 HI 6027 BUSINESS AND CORPORATIONS LAW 1 Statement: representation or term? ï‚§ï€ A statement could be: ïƒ˜ï€ ï‚ a term will create contractual obligations between the parties, breach resulting in the injured party being able to sue. ïƒ˜ï€ ï‚ a collateral (or preliminary) contract is a preliminary contract on which the main contract is entered into, breach resulting in the injured party being able to sue. ïƒ˜ï€ ï‚ a representation induces an offeree to enter into the contract but is not part of the contract and not actionable in contract law. A remedy may lie under Australian Consumer Law ïƒ˜ï€ ï‚ a sales puff is not intended to have any legal effect, and no remedy is available 4 Statement: representation or term? ï‚§ï€ To determine whether a statement is a representation or a term depends on: ïƒ˜ï€ ï‚ time lapsed between the making of the statement and the final agreement ïƒ˜ï€ ï‚ whether the innocent party was asked to verify the statement ïƒ˜ï€ ï‚ whether the statement was made with the intention of preventing the other party from looking for/finding any defects CASE: Hopkins v Tanqueray (1854) ïƒ˜ï€ ï‚ the importance attached to the statement CASE: Pym v Campbell (1856) ïƒ˜ï€ ï‚ whether one of the parties had special skill or knowledge CASE: Oscar Chess v Williams [1957] Statement as a term ï‚§ï€ If the statement is a term, then you need to ask is it: ïƒ˜ï€ ï‚ a condition: a vital term going to the root of the contract and allowing the injured party the option of rescission and/or damages or ïƒ˜ï€ ï‚ a warranty: a term of lesser importance that allows the injured party only to recover damages or ïƒ˜ï€ ï‚ an innominate term: an intermediate term which, while it could be minor, could have a very serious effect and cause the contract to end, allowing the innocent party to rescind the contract and/or obtain damages 6 HI 6027 BUSINESS AND CORPORATIONS LAW 2 Statement as a term ï‚§ï€ To determine the importance of a term, the courts may: ¥ ïƒ˜ï€ ï‚ apply an objective test, looking at the contract as a whole, and consider whether the stipulation is essential to the contract CASE: Associated Newspapers Ltd v Bancks (1951) or ¥ ïƒ˜ï€ ï‚ look at the effect the breach has on the contract CASE: Poussard v Spiers & Bond [1876] CASE: Bettini v Gye [1876] or ¥ ïƒ˜ï€ ï‚ consider if the breach has deprived the innocent party of substantially the whole benefit that they should have derived from the contract CASE: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] Statement as a term ï‚§ï€ A statement may also be classified as a: ïƒ˜ï€ condition precedent: • a term that prevents an agreement turning into a contract until the happening of a stated event CASE: Pym v Campbell (1856) • a term which goes to the performance of a party’s obligations under a contract or ïƒ˜ï€ condition subsequent: • a term in the contract which can terminate it on the occurrence of some external event CASE: Head v Tattersall (1871) Implied and meaningless terms ï‚§ï€ Implied terms are derived from: ïƒ˜ï€ custom or trade usage CASE: Pelly v Royal Exchange Assurance (1757) ïƒ˜ï€ statute, e.g. consumer protection legislation ïƒ˜ï€ the courts, where there has been an oversight by the parties CASE: The Moorcock (1889) ïƒ˜ï€ prior dealings CASE: Hillas & Co Ltd v Arcos Ltd (1932) CASE: Scammell v Ouston [1941] ï‚§ï€ If the term has no meaning, the courts will sever it if possible CASE: Fitzgerald v Masters (1956) HI 6027 BUSINESS AND CORPORATIONS LAW 3 Exclusion clauses ï‚§ï€ ï‚ Also known as exception or exemption clauses or terms ï‚§ï€ ï‚ Most commonly found in standard form contracts. ï‚§ï€ ï‚ Their purpose is exclude or limit the liability of the person inserting them. ï‚§ï€ ï‚ Their effectiveness is a matter of

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Case Study 1 for HI6027 Individual Assignment (10 marks) Eve is interested in buying Adam’s flower shop. Adam claims that the flower store makes $600,000 per month and shows Eve a few monthly receipts that demonstrate thze business makes up to $50,000 per month on average. What Adam didn’t tell Eve was that the flower store only produces about $30,000 per month during the winter months due to the limited choice available to consumers. This has an impact on the flower shop’s entire annual turnover, resulting in an annual turnover of around $540,000. Eve purchased Adam’s firm based on Adam’s assertions as well as her conviction in her own abilities.

construction of the contract as a whole, taking into account the bargaining position of the parties. ï‚&a

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