Laws 1204 Contracts Semester 2 2000 Mark: 93

How to Use this Script: These Sample Exam Answers are based on problems done in the past two years. Since these answers were written the law has changed and the subject may have changed. Additionally, the student may have made some mistakes in their answer, despite their good mark. Therefore DO NOT use this script by copying or simplifying part of it directly for use in your exam or to supplement your summary. If you do so YOUR MARK WILL PROBABLY END UP BEING WORSE! The LSS is providing this script to give you an idea as to the depth of analysis required in exams and examples of possible structures and hence to provide direction for your own learning. Please do not use them for any other purposes - otherwise you are putting your academic future at risk. Part A Hermoine wishes to prove that her termination of the catering contract with Quidditch was lawful. If she proves this successfully she will not be liable for the damages Quidditch is asking for. Alternatively if it is found her termination was unjustified she wishes to know what damages she is liable for. In order to lawfully terminate the contract, Hermoine must prove that Quidditch was seriously in breach. The possible complaints Hermoine has are: - the lack of vegetarian meals - the fact the food wasnt fresh and hot - the breach of the time clause by Quidditch - the fact the food tastes appalling. Vegetarian Meals + Fresh + Hot The comments about the meals being fresh and hot and that Quidditch could guarantee at least three different meals every evening including one vegetarian: were made in the course of pre-contractual negotiations. Hermoine needs to prove these were a part of the contract. The law relating to this states: - A pre-contractual statement may be a promise or representation. To determine if something is a promise the following factors may be considered: - the time when the statement was made - whether it was in writing - the relative knowledge of the parties. (Couchman v Hill, Oscar Chess v Williams, Ellul and Ellul v Oakes) In this situation, Quidditch made the comment to Hermione immediately before the contract was entered into, he was also in a position of grater knowledge. Though it wasnt in writing thus was

accepted in Couchman v Hill to not always be necessary. Therefore it appears the two comments made by Quidditch were promises. The problem, is however that when a contract is in writing the parol(?) evidence rule comes into play. Though this rule operates only when the contract is all in writing. (State Rail Authority v Heath). It can be integrated into the contract (Johnson & Matthey v Rochester). This rule excludes any precontractual statements, promises etc that dont appear in the written contract. Cl 9 of this agreement has integrated the past evidence rule so neither of the promises made can be incorporated into the contract. It is possible however, to have a pre-contractual promise considered to be a separate unilateral contract. This is called a collateral contract. To satisfy the conditions of this the promise must be - the kind you wouldnt expect in the contract (Shepperd v Ryde) - and it cannot contradict the main contract (Hoyts v Spencer) In this case it would appear that Hermione has signed a fairly standard sales contract. You would not expect details about the type and temperature of the food in this. There is no contradiction between these statements and the contract. Therefore the type and temperature of the food may be considered as separate collateral contracts. There is a requirement that a contract must be certain. A therm that has several meanings or no meaning at all is deemed uncertain if it is not possible to sever this term from the contract the contract will become void. (Whitlock v Brew). The description of the food as being fresh and hot could have several meanings. It could include any range of temperature and any definition of fresh ingredients. As this is the only term of the collateral contract it must void - Hermoine is left only with the collateral contract for the vegetarian meals. This collateral contract can be terminated for a breach that goes to the root of the contract (Hong Kong Fir Shipping) not providing at lease one vegetarian dish per day is certainly be the root of this collateral contract. Therefore Hermione can terminate it and seek damages for the lack of vegetarian food. However unfortunately for her this does not affect the main contract. Hermoine may alternatively argue that in promising to provide her with vegetarian food, she was mislead as to Quidditchs future conduct. This comes under SSIAA of the trade practices Act. It will be up to Quidditch to prove that when he made the statement he did intend to keep it at the time. (see Futuretronics v Gadzhis) Though this is a heavy onus Quidditch may be able to dispel it by arguing he did intend it but then suffered kitchen troubles due to the temporary problems of the 4th week. (What is necessary for misleading and deceptive conduct will be discussed in Part B). If Quidditch doesnt dispel this onus Hermoine will be entitled to s. 87 of the TPA remedies which incl. the contract being terminated, damages etc. It also possible to argue that there was a common law misrepresentation as to the state of ones mind. (Eddington v Fitzmaurice). However as the only remedy awarded under this generally is recision it does not help Hermione. It is impossible to hand back eaten food. Therefore it is most likely that the guarantee of a vegetarian meal will be treated as a collateral contract which will entitle Hermione to damages but not to terminate the main contract. The time clause The general law relating to the termination of a contract is whether a condition (a serious term) or a warranty (a non-serious term) has been breached. If a condition has been termination is justified. If it is difficult to assess if something is a term or condition you must consider if the breach got to the root of the contract or deprived the other party of substantially the whole benefit of the contract. A special method of determining if a breach of a time clause is a serious breach if the phrase time is of the essence is used a breach of a time clause will always be considered as serious. There is some authority that in mercantile contracts time will always be of the essence (Bunge Corp v Tradax) but this isnt always followed. In this situation time is of the essence hasnt been used. However, the word SHARP following the 6 pm has been capitalised. Hermione could try and argue that the emphasis on this word was to indicate time is of the essence but this would be difficult to do without using the actual phrase. A further indication that breach of a time clause will not be considered a serious breach is the fact that Hermione

has been late in paying for her meals every week despite the stipulation that they be paid IN ADVANCE. In such circumstances one 1.5 hr breach could not be considered a breach that goes to the root of the contract. The food tastes appalling Under common law Hermione has no grounds for this complaint. There was no term in the contract relating to the taste or customer satisfaction required for the food. However there are terms implied in certain contracts by statute, eg. The Trade Practices Act specifies that goods must be fit for their purpose and must be of merchantable quality. Food would not generally be considered a good but if Hermione could find another statute specifying the quality of food and demonstrate that the food supplied was in breach of that she may recover damages. If deemed to be serious enough it may also allow her to terminate the contract. A series of small breaches If there has been no one breach going to the root of a contract but a series of small breaches this may justify termination. Maple Flock v Universal Furniture. In Hermiones case she may argue the food quality and breach of the time clause if implied add up to a serious breach therefore justifying termination. Anticipatory Breach It is also possible to terminate a contract if it becomes clear the other party would not be able to fulfil their contractual obligation. This decision must be on the facts as they reasonably appear at the time. (Universal Cargo Carriers v Citat) If Hermione had reason to believe that Quidditch would be late from then on with the delivery an anticipatory breach termination may have been justified. But in my opinion the facts do not support this. Conclusion Hermoine was not justified in terminating the contract. Though she may seek damages for the breach of the collateral contract about the vegetarian meals none of the other breaches justified termination unless a statute supports the food quality argument. She will be liable in damages to Quidditch. Damages Quidditch intends to sue Hermione for a loss of profits and loss of a chance at winning the Australian Catering Competition. If one party unlawfully terminates a contract the other party can be awarded damages for their repudiators conduct. To satisfy this Quidditch must demonstrate that Hermiones breach caused the loss (Alexander v Cambridge and Credit Corp). That Hermoine could reasonably have contemplated the loss as a serious possibility at the time she entered the contract (Victoria Laundry). That Quidditch had done all they could to mitigate their loss. If terms of the lost profit it was clearly caused by Hermiones unlawful termination. It should also have been contemplated by her. However, it does not appear Quidditch has done anything to mitigate the loss. He is therefore obligated to find another buyer and Hermione will be liable for the difference between his first profit and the profit from the new buyer. With the loss of the chance at the prize. More facts are needed to show that her breach was the cause of Quidditch being dropped. Further it must be shown Hermione contemplated this when she entered the contract or Quidditch specifically warned her of it (Victoria Laundry). If this is satisfied Pauline will be liable. However the court will also take into account the perceived(?) chance of Hermione lawfully terminating the contract before the prize was awarded (Commonwealth v Ammann Aviation). The damages will only be reduced by this amount if it is beyond the balance of probabilities (at least on current authority)*(There was some support for the damages being reduced by % of chance of termination by HCA minority.) The damages may also be reduced by the chance Quidditch had of winning. (The beauty contest case).

Part B Hermione wants to either get out of the loan or be awarded damages for her loss from entering in to it. Ron wants to be relieved of his obligation under the guarantee. Ron will only be liable for the loan if Hermoine is. The main issue in this case is whether the Banks statement that the interest rate is better than any others on offer in Aust amounts to misleading or deceptive conduct under s. 32 of the Trade Practices Act. This requires a corporation in trade or commerce shall not engage in misleading or deceptive conduct. A corporation in trade or commerce Here clearly Malfoy was representing a corporation (bank) and was engaged in trade or commerce (a loan sale).

Misleading or Deceptive conduct The standard is the ordinary person who may be a bit nave but not unusually stupid. (Annaud v Thompson) The person receiving the information is not obliged to check it (Redgrave v Herd as applied to the TPA). In this situation Hermione is a businesswoman and does not appear to be unusually stupid. The fact she didnt check the opposition will not affect her action. It was found in Henjo that contributory fault is not relevant so even if she was a fault in not checking it does not matter.

Damages Are calculated as according to s. 82 of the TPA these are (?) style damages. Hermione will be required to prove that she could have got another contract with the same benefits as she thought she was getting without extra expense (Gates v City Mutual, Marks v GIO) It would appear that Pauline could actually have got a 6% loan with another institution. This would mean that the bank is liable for the difference between the 8% she was paying and the 6% she could have got. She could also attempt to argue common law misrepresentation as a statement of opinion by someone with sneak (?) knowledge is taken to supported by fact (Smith v Land & House) but as the only remedy is rescission taking the s. 52 claim is the most desirable course. Ron If for some reason Hermiones claim was to fail, Ron has other protection to avoid his guarantee. The court will protect guarantees made by a wife if (1) the wife didnt understand the nature and purpose of the transaction (2) it was voluntary and she didnt get any personal gain (3) she could trust her husband in business matters and he didnt explain. (4) The bank (etc) didnt explain the guarantee (Garcia v NAB) At this stage this has only applied to wives but the court may be willing to extend it to a husband. It is quite clear that Ron didnt understand the guarantee he thought it was just business paperwork. He gained no personal benefit (as benefit to a spouse isnt considered sufficient). The only problem with Rons claim is that if it is unclear whether he put all his trust in Hermoine for business matters. He wasnt involved in the hostel business and Hermoine claims he trusts her in business matters, but he runs a spiritual retreat in Sydney. Ron would be required to dearly prove that he puts all his trust in business matters in his wife in the authority the wife was a doctor. So Ron may

be able to demonstrate he didnt have the specific business knowledge. Hermione certainly didnt explain just telling Ron to come to the bank. It would appear the bank also did not explain and it is unlikely the court will accept Rons answer of Yeah, sure as adequately discharging the requirements of the bank to explain. Even though Ron signed the document, this protection allows the guarantor to be excused from the normal requirements that binds you to what you have signed. Therefore as long as the court is willing to extend this to husbands, Ron should be relieved of his obligation under the guarantee. In the case the court doesnt accept, Ron may be able to argue for unconscionable bargaining on the part of the bank. Ron would have to prove that his was in a special position of disability, that this was evident to the bank and this made a unconscionable to accept his agreement and the transaction (Commonwealth Bank v Amadio). One special disability is (?) or there is also infirmity of mind (Blomley v Ryan). Depending on how deep in meditation Ron was in and whether that continued at the bank. If his state was evident tot he bank it would have been unconscionable to take his agreement. This would depend on deep meditation being analogous to drunkenness or mental infirmity. However, as Ron actually made it to the bank ones argument is fairly weak.