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Contract Law

Q.1. Vendor owned a factory. He persuaded Mr Purchaser to sign a contract to buy it, and to pay a deposit of 50,000. During negotiations he
told Purchaser that the local authority had no plans to build a rumoured road nearby. In fact the local authority had decided to build the road
and was about to commence work. This might have been discovered by checking at the Town Hall, but Vendor genuinely believed what he had
said.

Vendor appears to have made a misrepresentation to Purchaser. This renders the contract voidable and if Purchaser acts
quickly, he will be able to rescind the contract which means that Vendor and Purchaser will be returned to their pre-
contract position. Purchaser will not be obliged to pay the rest of the price and he will be able to recover his deposit. In
addition Purchaser may be able to recover damages from Vendor unless Vendor can show that he was not negligent
under the Misrepresentation Act 1967.

Q.2. On 1 November 2004 Hirer Ltd contracted to hire a conference suite from Owner Ltd. The suite was to be used on 1st February 2005 as the
venue for a presentation by a marketing expert, entitled Developing Markets in China: My Experiences in Peking. The contract required Hirer
Ltd to pay 4,000 immediately, and the balance of 6,000 to be paid on or before 14 February 2005. Owing to the unforeseen and serious
illness of the marketing expert, the presentation had to be cancelled, and all those who had purchased tickets were given a refund.

If the identity of the expert was not crucial and Owner Ltd was able to obtain the services of another expert the contract
between Hirer Ltd and Owner Ltd would be enforceable. If however, the identity of the marketing expert was crucial
then the contract between Hirer Ltd and Owner Ltd would appear to have been frustrated. Hirer Ltd will be able to
recover the deposit of 4,000 under the Law Reform (Frustrated Contracts) Act 1943. Hirer Ltd will not be obliged to pay
the balance of 6,000. If Owner Ltd has incurred any expenses as a result of its contract with Hirer Ltd it may be able to
retain a reasonable sum to cover those expenses.

Q.3. HIJ Ltd contracted with TUV plc for the latter to service the formers industrial machinery. HIJ Ltd agreed to sign a document headed TUV
plc Service Agreement, which contained a clause stating neither TUV plc nor its employees will accept any responsibility for any loss or damage
arising from the servicing of customers machinery, irrespective of the manner in which the loss was caused . An employee of TUV plc carelessly
failed to replace certain parts of a machine which he had serviced. This error caused the machine to seize up, and HIJ Ltd lost several days
production and had to purchase a replacement machine.

The clause was incorporated into the contract by the signature of HIJ Ltd. The term is an exclusion clause, and, as such, is
subject to the provisions of the Unfair Contract Terms Act 1977. This Act provides that such a clause is void unless it can
be shown to be reasonable. A schedule to the 1977 Act provides a reasonableness test. On balance it would appear that
the clause is valid.

Q.4. Retailer Ltd contracted to purchase goods from Wholesaler Ltd for 10,000. The goods were to be sold to a customer of Retailer Ltd for
12,000. Retailer Ltd paid 500 to Distributor Ltd in return for its agreement to transport the goods, and paid a deposit of 1,000 to Wholesaler
Ltd. Wholesaler Ltd has now advised Retailer Ltd that it will be unable to supply the goods ordered.

Retailer is obliged to mitigate its loss by attempting to purchase the goods elsewhere. If they are available elsewhere at
a price of 11,000 Retailer will be entitled to damages of 1,000. If they are available elsewhere at a price of 9,000
Retailer Ltd will be entitled to nominal damages. Retailer will not be entitled to obtain the equitable remedy of specific
performance unless the goods were unique or otherwise unavailable elsewhere. Retailer will be able to recover its
deposit of 1,000. If Retailer is forced to lose its sale to the customer but the profit is considered too remote because it is
not within the contemplation of the parties, Retailer will not be able to recover its lost profit. In the facts of this problem
it is likely that the sale to a customer was within the contemplation of Wholesaler Ltd with the result that Retailer Ltd
will be able to recover its lost profit.

Source - CIMA Certificate in Business Accounting; Paper - C05


Best Regards'
Md. Mhamudul Hasan